Payment Risks of Lower-Tier Payment Gateways Must Be Assessed
Assessment Results to Be Reflected in Contracts
Guidelines Take Effect from January 5 Next Year
The Financial Supervisory Service announced on November 30 that it will introduce guidelines aimed at improving the multi-tiered payment practices of payment gateway companies (electronic payment service providers).
The Financial Supervisory Service explained that as online payments have rapidly expanded, a multi-layered structure involving multiple payment gateway companies at various stages of the payment process has become more common. This has led not only to overlapping fee burdens, but also to issues such as illegal or insolvent payment gateways acting as intermediaries in transactions.
Currently, the Electronic Financial Transactions Act only requires verification of whether a lower-tier payment gateway is registered when entering into contracts, highlighting limitations in the regulation of payment gateway businesses. This has prompted the introduction of the new guidelines.
Under the guidelines, electronic financial service providers will be required to assess payment risks when entering into or renewing contracts with lower-tier payment gateway companies. When evaluating and monitoring payment risks, they must check and reflect factors such as the registration status of the lower-tier payment gateway, compliance with management standards, financial condition, status of settlement fund management, and any history of financial sanctions or involvement in illegal transactions.
Electronic financial service providers must consider the results of their payment risk assessments when deciding whether to enter into or renew contracts. Even during the contract period, they should determine appropriate responses, such as requesting corrective action from lower-tier payment gateways or terminating contracts early, based on ongoing monitoring of payment risk levels.
An official from the Financial Supervisory Service emphasized, "We have required electronic financial service providers to assess payment risks and reflect the results in their contracts with lower-tier payment gateways. This will help strengthen protection for electronic financial service users and enhance the payment risk management capabilities of electronic financial service providers by addressing illegal or insolvent payment gateways."
The guidelines were established following a resolution by the Financial Supervisory Service's Administrative Guidance Review Committee on November 26. After a preparation period for IT and system development, they are scheduled to take effect on January 5 next year.
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