Credit card labor unions are gathering to oppose government measures. (image: Korea Bizwire)
SEOUL, Nov. 27 (Korea Bizwire) — South Korea’s comprehensive plan to deal with credit card fees paid by merchants is taking a heavy toll on credit card companies.
The implementation of the plan may result in losses among card companies year, forcing them to take emergency measures.
“Credit card companies were stunned to find out that the mandated rate decrease was larger than expected,” said a source from the Credit Finance Association.
“On top of a worsening financial situation, we are worried how we will deal with the impact coming from the cuts in credit card fees.”
Finance authorities said there was capacity as large as 1.4 trillion won (US$1.24 billion) to absorb the impact coming from lowering credit card fees.
Out of the 1.4 trillion won, authorities plan to implement cuts of 800 billion won, considering that the previous policy on credit card fees is expected to decrease the profits of credit card companies by 600 billion won.
The Financial Supervisory Service’s statistical data shows that total net income of all credit card companies last year was approximately 1.2 trillion won. Subtracting the proposed 1.4 billion won in cuts from the net income means that all credit card companies are expected to face losses.
The point lies with cuts on spending. Finance authorities called on the companies to reduce expenditures on marketing.
They believe that reducing costs spent on one-time marketing strategies such as interest-free installments, offers for additional card points, as well as commissions given to planners for each new customer can help cut down on credit card fees.
Consequently, the companies have been asking the authorities to allow them to change the general terms and conditions to modify the structure of products leading to losses.
So far, there has been not a single case in which any form of revision to the terms and conditions has been permitted.
Discouraging the promotion of credit cards resulting from cuts in credit card fees will inevitably bring non-bank card companies or small-sized card firms to protest, raising doubts as to whether they will ever adhere to the authorities’ wishes to cut down on new customer acquisition efforts.
Reducing marketing costs means fewer card benefits for customers, and credit card companies have yet to find an answer to the negative reactions they might receive from their customers.
“The request from finance authorities to cut down on marketing costs leaves us with no option but to resort to emergency management,” said a source from one credit card company.
Expanding the range of applying fee discounts is also becoming a source of complaint.
It was pointed out that the move may be deviating from the original intention of the legislation, which is to calculate the appropriate level of fees every three years to set the rate of credit card commission independently.
Under current practices, finance authorities unilaterally set fee discounts for small (under 300 million won in annual sales) to middle-sized (300 million won to 500 million won) businesses, while for normal businesses (over 500 million won in sales), related parties gather every three years to set the discount rates.
Now, the new policy will expand the range of applying fee discounts to include all businesses under 3 billion won in annual sales, raising the ratio of beneficiaries of fee discounts by 93 percent, leaving only 7 percent as normal businesses to set the discount rates via consultation.
“The government policy was designed to help small to middle-sized businesses, and we are not sure if businesses with 3 billion won in annual sales match this description,” said a source from a credit card company.
Credit card labor unions are gathering to oppose government measures.
They defined the government policy as an “anti-democratic act that takes away even the most democratic and social agreement between interested parties,” pointing out that “the critical question of credit card fees for large-sized businesses is not even being considered.”
The labor unions agreed on Friday to call on the government to raise credit card fees for organizations of small and middle-sized merchants and large-sized businesses, while lowering fees for small and middle-sized businesses.
“The new policy that does not include provisions on raising fees for large-sized businesses as well as setting minimum fees will not only hurt the card companies, but also small and middle-sized businesses, the citizens, and all other interested parties,” they said.
“The government should immediately retract the new policy proposal and adhere to our demands, or face the consequence of a general strike.”
H. M. Kang (hmkang@koreabizwire.com)
