[The Editors' Verdict] Legislation of E-Commerce Payment Cycles Must Be Prioritized

AliExpress and Temu Launch Aggressive Expansion in Korea
Large-Scale Recruitment of Korean Sellers Underway
Tmef Crisis Spurs Calls for E-commerce Payment Cycle Regulation

Chinese e-commerce (C-commerce) platforms have stepped up their efforts to target the Korean market this year. Pinduoduo's global platform Temu declared its direct entry into Korea last month and is reportedly securing a large-scale logistics center in the Seoul metropolitan area. With a logistics center equivalent to 23 soccer fields, many expect the domestic delivery time for ultra-low-priced Chinese products to be shortened.

AliExpress, which entered Korea before Temu, established a Korean subsidiary last year and began actively selling Korean products. This year, Alibaba International, which operates AliExpress, will establish a joint venture (JV) with the Shinsegae Group. Gmarket and AliExpress Korea will be incorporated as subsidiaries under the JV, and these platforms will continue to operate independently as they do now.

The intentions of C-commerce platforms entering the Korean market are not entirely clear. However, it is expected that they will directly generate profits in Korea, the world's fifth-largest e-commerce market, while also developing a reverse direct purchase business that sells Korean products globally. In fact, the Shinsegae Group anticipates that the 600,000 sellers trading on Gmarket will be the biggest beneficiaries through the JV with Alibaba. If products sold by Gmarket sellers are listed on Alibaba International's global platform, they will have access to sales channels in over 200 countries worldwide. Temu also recruited Korean sellers for its open market business last month. This indicates that domestic sellers are essential for the business these C-commerce platforms conduct in Korea.

Following last year's large-scale payment delays by Tmon and Wemakeprice (Tmef), there have been strong calls to legislate payment cycles for e-commerce. According to a Financial Supervisory Service investigation, the total unpaid amount owed by Wemakeprice and Tmon to sellers reached 1.3 trillion KRW. The total number of affected sellers was about 48,000. While offline retail companies are regulated under the Large-scale Distribution Business Act to settle payments to suppliers within 40 days (60 days for direct purchases), e-commerce was not subject to this, which led Tmef, facing financial difficulties, to misuse sales proceeds owed to sellers.

The government hastily prepared countermeasures. The Fair Trade Commission has moved to amend the law to require e-commerce businesses with domestic sales exceeding 10 billion KRW to settle payments to sellers within 20 days after consumers confirm their purchases. This measure was included in the Large-scale Distribution Business Act amendment bill, which was introduced last October by Kang Min-guk, a ruling party member of the People Power Party. The amendment includes e-commerce platforms above a certain scale as large-scale distributors, imposing the same legal obligations that apply to offline retail companies. It also requires that more than 50% of sales proceeds be deposited in banks to minimize damage even if the platform faces financial difficulties.

However, this bill has not even been discussed since it was submitted to the National Assembly's Judiciary Committee subcommittee on December 3 last year. The same applies to another amendment to shorten the payment cycle to about five days, faster than the current 20 days. Since President Yoon Seok-yeol's declaration of martial law last December, the ensuing internal strife and impeachment crisis have pushed these issues to the back burner for months.

In the National Assembly Judiciary Committee meeting held earlier this month, the payment cycle for retail companies was once again brought up in light of Homeplus's corporate rehabilitation. There were continued criticisms that the current 40-day payment cycle under the Large-scale Distribution Business Act is too long. As the consumer market rapidly changes, the domestic retail market is precarious, with Homeplus, the second-largest domestic hypermarket, facing bankruptcy risk. It is necessary to fix the barn before losing the cow.