[Exclusive] Korea Fintech Industry Association Urges Judiciary Committee to Return 100% Settlement Fund Outsourcing Rule to Political Affairs Committee

Controversy Over the "100% Rule" Leads to Unprecedented Request to the Legislation and Judiciary Committee
"Moral Hazard of Distributors Behind the Tmon and Wemakeprice Crisis...
Only Diligent Small and Medium-Sized PG Companies Suffer from Reverse Discrimination"

The Korea Fintech Industry Association has requested the National Assembly’s Legislation and Judiciary Committee to send back the proposed amendment to the Electronic Financial Transactions Act?which would mandate 100% external management of settlement funds by payment gateway (PG) companies?to its relevant standing committee. While large-scale distributors that own PG subsidiaries, such as Baemin, are subject to the Large-Scale Distribution Business Act (regulated by the Fair Trade Commission), which only requires 50% of settlement funds to be entrusted through mergers and similar arrangements, small PG companies must comply with the Electronic Financial Transactions Act (regulated by the Financial Services Commission), which requires 100% entrustment. This has sparked controversy over reverse discrimination. It is highly unusual for an industry association to request the Legislation and Judiciary Committee to return a single bill, drawing significant attention from the financial sector.

According to the financial and political sectors on August 5, the Korea Fintech Industry Association officially requested the Legislation and Judiciary Committee on August 1 to return the amendment to the Electronic Financial Transactions Act to the Political Affairs Committee, its relevant standing committee. The association specifically asked the Legislation and Judiciary Committee to: “stipulate in the law that the external management ratio should be at least 50%,” “revise the article (the 100% rule) in the Legislation and Judiciary Committee,” and “send the relevant content back to the Political Affairs Committee.”

Previously, on July 30, the Political Affairs Committee passed the amendment to the Electronic Financial Transactions Act, which includes the 100% rule mandating that all settlement funds be entrusted to external institutions starting two years after the law’s implementation. Although the bill is expected to pass smoothly after going through the Legislation and Judiciary Committee and the plenary session, the Korea Fintech Industry Association has requested the Legislation and Judiciary Committee to reconsider its passage.

According to political sources, the Large-Scale Distribution Business Act is still pending but includes the “50% rule” for settlement funds. There has been no discussion in the National Assembly about raising the ratio to 100% or standardizing the ratios as in the Electronic Financial Transactions Act. On the contrary, the Political Affairs Committee has even suggested applying the 50% rule to other industries with similar payment structures, such as taxi companies.

At the first subcommittee review of the bill by the Political Affairs Committee on November 15 last year, Choi Byungkwon, the current chief expert of the National Assembly’s Strategy and Finance Committee (then of the Political Affairs Committee), proposed that while taxi operators and e-commerce platforms should be considered PG operators, the Electronic Financial Transactions Act should not be applied to them. Taxi operators perform essentially the same tasks as PG companies when they claim the fare from private taxi drivers before the customer’s payment is transferred from the card company.

According to the Korea Fintech Industry Association, companies that could be subject to the 50% rule include distribution platforms with PG subsidiaries such as Baemin, as well as platforms with their own PGs like SSG.com, Gmarket, and 11st.

Of the 36 companies eligible to operate both e-commerce and PG businesses, 23 (63.9%) are classified as large enterprises (including subsidiaries) by the Fair Trade Commission. These companies can avoid regulation under the Electronic Financial Transactions Act by switching to a platform model, creating a regulatory blind spot. In contrast, of the 146 dedicated PG companies, 119 (81.5%) are classified as small and medium-sized enterprises by the Fair Trade Commission. These small PG companies cannot avoid the 100% rule under the Electronic Financial Transactions Act, inevitably raising concerns about reverse discrimination.

The only steps remaining for the implementation of the Electronic Financial Transactions Act are passage through the Legislation and Judiciary Committee and the National Assembly plenary session. According to political sources, the schedule for the Legislation and Judiciary Committee has not yet been set, but it is highly likely that no meetings will be held this week (August 4?8). The Korea Fintech Industry Association has decided to continue requesting in the next committee meeting that the settlement fund management ratio (100%) under the Electronic Financial Transactions Act be aligned with that of other laws (50%).

A representative of the association stated, “Due to the moral hazard of large-scale distributors (Tmon and Wemakeprice) responsible for last year’s Tmon and Wemakeprice settlement payment crisis, the amendment prepared by the National Assembly will only end up tightening the regulations on diligent small and medium-sized PG companies, resulting in obvious reverse discrimination. While consumer protection is important, we strongly request that the external management ratio for settlement funds under the Electronic Financial Transactions Act be matched to the 50% stipulated in the pending Large-Scale Distribution Business Act in the National Assembly, so as to avoid reverse discrimination.”