FSS suspects Kakao Pay of receiving kickbacks

Financial Supervisory Service (FSS) headquarters in Yeouido, Seoul / Newsis

By Anna J. Park

Kakao Pay has allegedly received kickbacks from NICE Information & Telecommunication, a Korea-headquartered company providing integrated payment services through credit card value-added network (VAN) services.

According to the financial industry on Tuesday, the Financial Supervisory Service (FSS) referred the case to the police in early June, requesting further investigation after the state-run financial watchdog conducted an on-site inspection of Kakao Pay in May. The police began their search-and-seizure and investigation into the headquarters of the payment company earlier this week.

In 2021 and 2022, NICE Information paid the fees that Kakao Pay should have been paying to agencies recruiting affiliated merchants for the mobile payment company. The aggregated amount of fees that NICE Information paid to affiliated merchants is estimated at hundreds of millions of won (hundreds of thousands of dollars). The FSS suspects that the VAN provider provided kickbacks to Kakao Pay in hopes of maintaining the transactional network relationship.

According to the Specialized Credit Financial Business Act, major payment companies like Kakao Pay shall not receive or demand unfair compensation from VAN financial service providers. VAN companies are also prohibited from offering the companies unlawful kickbacks. Violation of the Specialized Credit Financial Business Act is subject to criminal punishment, instead of administrative penalties.

As a VAN company, NICE Information operates data transfer services between merchant affiliates and card companies through network development, transfer of credit card approval data, card purchase statements and billing services. The firm has been providing most online transactions using Kakao Pay.