Card Industry's Long-Awaited 'Fee Increase'... Not Even Allowed to Speak Up [1mm Financial Talk]

The long-standing issue in the card industry of raising card merchant fees has yet to gain public traction. This year is the year to decide the fee rates, which are recalculated every three years, but due to the aftermath of the general election and other factors, discussions on fee rate calculations have not even begun, and planned system improvements have not been implemented.

In February 2022, the Financial Services Commission launched the 'Card Fee Eligible Cost System Improvement Task Force (TF)' to establish reasonable card fees. The TF is composed of financial authorities, card companies, the Korea Federation of Micro Enterprise, consumer groups, and experts. Since 2012, eligible costs, which are recalculated every three years, reflect the cost of card payment processes such as funding costs, risk management costs, and fees for Value-Added Network (VAN) service providers. Only after determining the eligible costs can the full-scale fee rate calculation begin.

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The financial authorities initially planned to present an improvement plan for the eligible cost system through the TF by the end of last year. However, even halfway through the first quarter of this year, there has been no news. Not a single full meeting has been held this year. A Financial Services Commission official explained, "We are individually gathering industry opinions," adding, "There are many stakeholders and the momentum is not strong, so it is unlikely that an improvement plan will be released within the first quarter."

The card industry is determined to either raise or at least freeze merchant fee rates this year. Merchant fees set by the Financial Services Commission have been continuously lowered 14 times from 2007, before the revision of the Specialized Credit Finance Business Act, until 2021. The fee rate for small and medium-sized merchants, which was 4.5% in 2007, has dropped to around 0.5% to 1.5% currently. Card companies collectively say that with rising funding costs and labor expenses in recent years, further reductions in fee rates would make their core business difficult to sustain. A card company official said, "At the end of 2021, the main reason the financial authorities lowered the fee rates was the reduced funding costs due to low interest rates, but the situation has completely reversed now," adding, "Because the rates are only lowered under political pressure, card benefits for consumers inevitably decrease."

According to the Financial Statistical Information System, the merchant fee revenue of seven domestic card companies (excluding BC Card) decreased by 5.8%, from 5.1011 trillion won in 2018 to 4.805 trillion won in 2022. The proportion of merchant fees in card revenue dropped from 35.9% in 2018 to 29.9% based on cumulative data up to the third quarter of last year. Meanwhile, interest expenses increased by 50%, from 1.8267 trillion won in 2018 to 2.7322 trillion won in 2022. By the end of the third quarter last year, cumulative interest expenses reached 2.7813 trillion won, already exceeding the total interest expenses for 2022. As revenues decline and costs rise, card companies have recently tightened their belts through restructuring.

Within the card industry, the slow progress of eligible cost system improvements is widely attributed to the financial authorities being overly conscious of the general election. If the improvement plan becomes a basis for raising merchant fees, it could face fierce opposition from 7.2 million small business owners nationwide, causing a burden. Conversely, if the plan favors fee reductions, collective actions by financial labor unions are anticipated, leaving the authorities stuck in a dilemma. A credit industry official said, "The government is already at odds with the medical industry over the issue of expanding medical school quotas, and they do not want to give the opposition party any advantage," adding, "The Financial Services Commission's so-called individual industry opinion gathering feels like mere formal meetings such as breakfast briefings, seemingly just buying time."

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