Visa, card issuers at odds over fees

By Nam Hyun-woo

Visa and domestic credit card issuers are in conflict over commissions, with disagreements deepening in the wake of the card firms taking the issue to the fair trade watchdog here.

Eight domestic credit card issuers -- KB Kookmin, Samsung, Hyundai, Shinhan, BC, Woori, Hana and Lotte Cards -- said Tuesday that they have filed petitions with the Korea Fair Trade Commission (KFTC).

They have been at odds with Visa for more than six months after the global payment network company decided in May to raise user fees for overseas payment settlements of cards from Korean firms using the Visa network.

The decision, which initially was to take effect in October, also included other types of fee increases that will cost domestic card firms.

Visa plans to raise the fees to 1.1 percent from 1 percent of card purchases.

The card firms strongly opposed the fee hike plan, sending a series of letters complaining about the “unilateral” decision and threatened to take legal action against Visa. Also, consumer groups issued statements denouncing Visa’s move and took actions such as boycotts.

In the face of strong opposition, Visa postponed the overseas settlement fee hike to January next year, but card firms are calling for the withdrawal of the decision. The firms had planned to shoulder the raised fees themselves in a belief that the hike is problematic and they cannot burden customers.

They say Visa has been unfairly abusing its monopolistic status in the market.

The KFTC said it will look into the case with a two-way approach. First, it will check on whether Visa’s move is a violation of Article 3 of the Monopoly Regulation and Fair Trade Act, which prohibits abuse of a market-dominating position.

“The law regards an enterprise whose market share accounts for more than 50 percent as a dominant player in the market,” said an official at the KFTC. “Should Visa raise commissions significantly, it can constitute a breach of the act.”

Secondly, the KFTC will use Article 23 of the act which prohibits unfair trade practices. In the terms of the article, an enterprise should not trade under conditions which unfairly restrict business activities or disrupt business activities of a counterpart.

Should the KFTC find domestic card firms cannot operate without using Visa’s network, it will regard Visa as being in a superior position in its terms with domestic card firms. A fee hike under such conditions can be regarded as a disadvantage for the card firms.

“If we find out a company is involved in unfair practices, we order fixes, impose fines or refer it to the prosecution,” the official said.

He said that the watchdog is currently reviewing Visa’s case, but expects slapping sanctions against Visa to be difficult as it is an overseas enterprise.

Lee Hyo-chan, a researcher at the Credit Finance Research Institute, also said the key point of the conflict is whether Visa has a monopolistic status.

“Though Visa and Master Card are neck and neck in the number of affiliated stores, Visa accounts for some 50 percent of the market in terms of settlement amount,” Lee said.

When controversy stirred, domestic firms claimed that it is unfair that Korea is the only Northeast Asian country where Visa seeks to raise fees. Though Visa said all countries in the region will have fee hikes, Lee pointed out that the company is not obliged to disclose by how much they will raise fees in other countries.

A Visa official said: “Though the fee hike plan in Korea was disclosed, details of fees in other countries are confidential between Visa and issuers.”