[Exclusive] Disclosing Fees Actually Increased Profits... Naver, Kakao, and Toss Earned 10% More

After Introduction of Mandatory Disclosure System, Convenience Payment Companies' Fee Revenues Rise
Increased Burden on Merchants... Effectiveness of Fee Hike Suppression Remains Low

It has been two years since the government implemented the mandatory disclosure system for convenience payment fees, but the fee revenues of companies have actually increased. There are also criticisms that the policy, which aimed to induce voluntary competition among companies and suppress fee hikes by mandating disclosure, has not been very effective.

On February 12th, a customer visiting GS25 used the Toss 'FacePay' simple payment system. Yonhap News

According to data submitted by the Financial Supervisory Service to the office of Kim Hyun-jung, a member of the National Assembly's Political Affairs Committee from the Democratic Party of Korea, the fee revenues of eight convenience payment and electronic payment gateway (PG) companies, including Naver Financial, Kakao Pay, and Toss, increased by 9.9%, from 1.021 trillion won in the second half of 2022 to 1.1217 trillion won in the first half of last year. Since the mandatory disclosure system was introduced in 2023, these companies' fee revenues have steadily increased every half-year.

As of the first half of last year, the company with the highest revenue was Naver Financial (499.8 billion won), followed by KG Inicis (311 billion won), Kakao Pay (174 billion won), and Gmarket (60.5 billion won). Viva Republica earned 46 billion won, and Toss Payments earned 18.5 billion won, with Toss earning a total of 64.5 billion won. The three big tech companies?Naver, Kakao, and Toss?accounted for 66% of the total fee revenue.

The increase in fee revenues for big tech companies was also steep. Compared to the second half of 2022, the growth rates in the first half of last year were 54.2% for Toss Payments, 39.8% for Viva Republica, 18.1% for Naver Financial, and 12.1% for Kakao Pay. All exceeded the average increase of 9.9%.

The convenience payment fee rates were about twice as high as those of card companies. In the first half of last year, the average prepaid payment fee rate charged by convenience payment companies to small and medium-sized merchants was 1.94%, while the preferential credit card fee rate was 1.09%. Most of the prepaid payment fees are taken by convenience payment companies.

The market is seeing increased demand for convenience payments due to the spread of Apple Pay and other factors. Following Hyundai Card, Shinhan and KB Kookmin Card are also preparing to introduce Apple Pay. Other card companies are likely to expand convenience payments to maintain their market share. This structure inevitably increases the burden on merchants going forward.

Experts say it is difficult to expect fee reductions from convenience payment companies through the mandatory disclosure system alone. There are also criticisms that it exacerbates fairness issues with card companies. Rather than uniformly regulating convenience payment companies like card companies, there is a growing call to relax regulations on card companies to create a fully competitive market. The government applies qualified cost (cost) calculation regulations in the process of setting preferential card fee rates.

Seo Ji-yong, a professor in the Department of Business Administration at Sangmyung University, said, "If convenience payment companies' fee revenues increased despite the disclosures, it means the mandatory disclosure policy has no effect," and emphasized, "A fully competitive system should be induced so that the company offering the lowest fees is chosen by merchants and consumers."

Kim Sang-bong, a professor in the Department of Economics at Hansung University, said, "Countries that regulate card company fees by law like Korea are rare worldwide," and added, "To lower convenience payment company fees, card company regulations must first be relaxed to establish a competitive system."

The financial authorities have not presented any significant measures other than subdividing disclosure items. The Financial Services Commission announced in its work plan in January that it would promote improvements to the convenience payment fee disclosure system this year. It plans to announce an improved disclosure system including profitability and soundness indicators within the first half of the year.