Is Balaan’s payment suspension leading to second TMON-WeMakePrice crisis?

Main screen of luxury online platform Balaan / Screenshot from Balaan

Luxury online platform Balaan initiated corporate rehabilitation proceedings a week after facing controversy over delays in settling sales proceeds, the company CEO said Monday.

According to industry officials, Balaan has failed to settle payments to some vendors, citing a system error, since last week, leaving them unable to receive at least 13 billion won ($8.8 million) in sales proceeds.

This has heightened concerns that the situation could mirror the cases of two e-commerce platforms, TMON and WeMakePrice, which also entered corporate rehabilitation last year after experiencing payment delays.

Balaan CEO Choi Hyung-rok said in a statement that while the company had secured part of the planned investment for the first quarter of this year, additional funding was delayed unexpectedly, leading to a short-term liquidity crunch.

“To ensure the stable repayment of merchandisers’ trade receivables and enhance the sustainability of the Balaan platform, we filed for rehabilitation with the Seoul Bankruptcy Court,” he said.

After failing to settle payments to vendors on March 24, Balaan announced Friday that it would provide a schedule for resuming settlements. However, the company postponed it again to the following week, drawing strong protests from its sellers.

Amid mounting controversy over unpaid sales proceeds, product purchases and payments on the platform have also been unavailable since Friday. When attempting to make a payment via the mobile app, a message appears stating, “All payment methods are currently unavailable.”

This is believed to be due to credit card companies and payment gateway providers suspending their services. Balaan’s own payment service, Balaan Pay, has also been halted.

The platform’s average monthly transaction volume is around 30 billion won, with a total of about 1,300 vendors on the platform.

While the unsettled payments are reported to amount to 13 billion won so far, the damage is feared to increase further, raising concerns among sellers that this could turn into a second TMON-WeMakePrice incident.

The two Korean affiliates of the Singapore-based e-commerce platform Qoo10 delayed settlements, citing temporary system issues, and eventually entered corporate rehabilitation proceedings in late July last year.

According to the Financial Supervisory Service, the total unsettled amount these two online marketplaces failed to pay merchandisers is estimated at 1.3 trillion won, affecting around 48,000 businesses.

Once in corporate rehabilitation, settling trade receivables, such as sales proceeds, becomes difficult.

Founded in 2015, Balaan emerged as a rising startup during the COVID-19 pandemic as demand for contactless luxury shopping surged. However, the company is now facing a liquidity crisis as in-person shopping regained popularity after the pandemic, coupled with long-standing accumulated losses.

Its accumulated operating loss reached 72.4 billion won over the four-year period from 2020 to 2023, and it fell into a state of complete capital erosion starting in 2023.

Various products available for sale on Balaan / Screenshot from Balaan

Choi, however, noted that if the short-term liquidity issues are resolved, the company can quickly return to normal operations.

“The rehabilitation process would be a recovery process aimed at overcoming the crisis, rebuilding a healthy financial structure, swiftly restoring interests of partners (vendors) and establishing a sustainable business foundation,” the CEO said.

He stressed that this situation is different from the TMON-WeMakePrice crisis, where uncontrollable, unsettled payments emerged.

“Balaan’s rehabilitation process is fundamentally different from other cases," he said. "No financial damage has occurred to general consumers, and the amount of unpaid trade receivables is also lower than the company’s monthly transaction volume."

The firm’s goal, he said, is to attract an acquirer before the rehabilitation approval, repay the unpaid receivables and restore the transaction environment.

“We are rapidly pushing forward with the goal of mergers and acquisitions (M&A) before rehabilitation approval. We will designate a sales adviser this week to begin actively pursuing both the rehabilitation process and M&A in parallel."