The Controversy: Balancing Merchant Fees

Recent scrutiny has been directed towards credit card companies amid concerns that they are increasing fees for general merchants to compensate for reduced commission rates offered to small and medium-sized enterprises (SMEs). This practice raises questions about fairness and the potential burden it places on consumers.

Data Highlights Disparities in Sales and Merchant Numbers

data presented to the National assembly‘s Political Affairs Committee reveals a meaningful disparity between the number of general merchants and their contribution to overall credit card sales. Last year, general affiliates accounted for a significant 73.3% of all credit card sales, totaling 552 trillion won, out of a total 754 trillion won as of February this year.

In contrast, SMEs, which make up a significant portion of the merchant population, contribute a smaller percentage of total sales. Specifically:

• Merchants with annual sales below 300 million won represent 72.1% of all merchants.
• SMEs with annual sales between 300 million and 3 billion won account for 23.6% of merchants.
• merchants with annual sales under 100 billion won make up only 4.2% of the total.

This data underscores that while general affiliates constitute a small fraction of the total merchant base (4.2%),they generate the majority of credit card sales.

Government Initiatives and Unintended Consequences

The government has actively pursued policies aimed at alleviating the financial strain on SMEs by reducing card fee rates. The Financial Services Commission previously announced a reduction of 504 million won in fees for numerous small businesses, sub-payment agencies, and taxi operators. However, critics argue that credit card companies are undermining these efforts by implementing fee increases for general merchants.

According to reports, card companies promptly notified general merchants of these fee hikes following the government’s declaration of commission cuts for smaller businesses. This notification was allegedly delivered through ‘PG companies,’ which then relayed the information to lower-tier general merchants.

Profit Margins: A Closer Look

Concerns have been raised that the additional profits generated by credit card companies through increased fees for general merchants far outweigh the profit reductions resulting from lower commission rates for SMEs. An analysis of last year’s transaction data suggests that while commission reduction policies led to a 27 billion won decrease in credit card company profits, the additional revenue from general merchant fees amounted to 42.7 billion won.

As of the first half of the current year, merchants with annual sales below 3 billion won represent approximately 96% of all merchants, yet their credit card sales only account for about 27% of the total. Conversely, general affiliates, comprising roughly 4% of the total, generate approximately 73% of all credit card sales, totaling 552 trillion won.

Potential Impact on Consumers and Calls for Oversight

Experts warn that the increase in fees imposed by credit card companies could ultimately be passed on to consumers in the form of higher prices. This raises concerns about the potential for these fee adjustments to negatively impact household budgets and overall economic stability.

Some voices are advocating for financial authorities to intervene and sanction what they perceive as a unilateral increase in general merchant fees.The goal is to ensure that fee adjustment methods do not compromise market fairness. However, financial authorities have reportedly cited security concerns related to the cost of qualification calculations as a reason for not disclosing detailed information to the National assembly.

We need to check how much the card company has benefited by adjusting the commission through the qualification cost calculation.

Representative Min

The Broader Context: Credit Card Fees and Regulations

It’s critically important to understand the landscape of credit card fees. While the Credit CARD Act of 2009 aimed to increase openness and prevent hidden fees [1],various fees still exist. These can include annual fees [2],late payment fees,and other charges. The current debate focuses specifically on credit card processing fees, which typically range from 1.5% to 3.5% [3], and how these are being adjusted across different merchant categories.