Credit card firms upset over fee cuts

By Kim Jae-won

The financial regulator’s decision to cut credit card fees for small merchants from next year is prompting complaints from card issuers.

The government has bowed to demands from mom-and-pop stores, which have demanded drastic cuts to fees in order to help them overcome the protracted business slump.

But, officials from card companies claim this is a populist policy aimed at garnering more votes in the coming general elections.

They said they had no options but to follow the Financial Services Commission (FSC)’s regulation, but said the fee reduction would hit their bottom lines drastically.

The regulator and the ruling party agreed to cut card fees for small business owners next year to ease their financial burden.

The commission rate for small business owners with annual sales of 200 million won ($176,000) or less will fall to 0.8 percent from 1.5 percent. The regulation will be effective from January.

“If the regulator asks us to follow it, we have no choice but to do so,” said a spokesman for a credit card company, asking not to be named.

“However, it will undermine our business a lot because the fee is one of two key revenue sources along with interest from loans.”

Market watchers said the announcement was part of the ruling party’s strategy to draw more votes in next April’s general elections.

But the regulator said the new regulation would not hurt credit card companies too much.

“Credit card companies’ borrowing costs have dropped considerably thanks to low interest rates,” said the FSC in a statement.

According to FSC data, credit card companies with AA credit ratings could borrow money at 2.1 percent in June, down from 3.83 percent three years ago.

The regulator said the fee cut was aimed at helping small grocers and shops, and that credit card companies could afford a possible fall in commission income.

The nation’s eight credit card companies posted a combined net profit of 1.09 trillion won in the first six months of the year, up 1.3 percent from a year ago, according to government data.

The FSC expects 2.39 million retail businesses, or 97 percent, will benefit from the fee cut, saving a combined 670 billion won a year.

A small business owner with 200 million won revenue would save up to 1.4 million won in credit card fees per year, said the regulator.

The regulator said fees for mid-sized merchants with 2 to 3 billion won in sales would fall from 2 percent to 1.3 percent.

For retailers with sales of less than 1 billion won, fees will fall from 2.2 percent to 1.9 percent.

Bigger chain stores with 1 billion won in sales or more will pay 1.96 percent in commission fees, unchanged from this year.

For debit cards, small and medium-sized businesses will face 0.5 percent and 1 percent commission rates, respectively, from next year.