Card fee scheme faces backlash
By Kim Tae-jong
The new system for credit card transaction fees is facing an immediate backlash after the basic outline of the system was unveiled Thursday.
The gist of the new plan is that transaction fees will be lowered to 1.91 from the current 2.09 percent on average by leveling varying rates. This move comes as part of the Lee Myung-bak administration’s efforts to help support small- and medium-sized businesses as well as customers for “shared growth”
The nation’s credit card firms have been applying favorable transaction fees to large retail chains while charging a regular fee for small players and the discriminative practice has drawn criticism from merchants.
“Basically, the reform aims at making a fair transaction fee system,” an official from the Financial Supervisory Commission said. “But naturally, there is disapproval from those who have enjoyed the benefits from the unreasonable 34-year-old system.”
The basic principle in the suggested reforms is to replace the current system of calculating transaction fees based on industry type with a new one that primarily takes payments by credit cards into consideration.
According to recent research, about 75 percent of businesses accepting plastic will benefit from lower rates, with smaller stores with monthly card sales between 10 million and 100 million won benefiting the most.
But market insiders argue that the rule could face major setbacks if large retail chains, which have been enjoying comparatively lower transaction fees thanks to their dominant position, keep opposing it.
“We may be helpless if large retail chains force us to keep the low transaction fee rate, threatening to cancel contracts with us, as they are simply in a more dominant position,” an official from a card firm said.
For example, Costco Wholesale Corporation, the U.S.-based membership warehouse chain that operates seven outlets here, currently pays Samsung Card 0.7 percent in commission, the lowest in the market through an exclusive business partnership. Members can only pay for purchases with cash or credit cards issued by Samsung.
Market insiders say such big chains will not easily give up their benefits, which will directly impact sales.
But owners of small-sized businesses do not seem to be happy with the new rule, either.
Owners of convenience stores and small shops argue that the rule will bring more financial burdens as they will have to pay a transaction fee whenever payment is made.
“At convenience stores, about 95 percent of credit card use is for payments of less than 10,000 won and store owners have to a pay transaction fee each time a customer uses plastic. This is not fair and a big burden for them,” an official from the Association of Convenience Stores said.
But their request to restrict payment with credit cards for small purchases has been scrapped for fear of dampening the already worsening spending sentiment amid growing worries over the country’s slowing economic growth.
Customers have also expressed concern over the new rule as some card firms plan to cancel or reduce additional benefits offered to cardholders such as discounts or mileage points on transactions.
“It is surely a wrong approach that card firms seek a solution to make up for losses in transaction fees by cutting or abolishing additional benefits offered to cardholders,” said Cho Nam-hee, secretary-general of the Korea Finance Consumer Federation. “That will only draw criticism from cardholders.”
Regarding the conflict of interest among key players, the FSC said it will narrow the differences and take legal steps if necessary so that it can come up with a reasonable new system on card transaction fee rates.
The FSC and the Credit Finance Association will decide the new credit card transaction rate within the first half of the year and to take effect in December.