By Lee Hyo-sik
Staff Reporter
Choi Se-jin, 33, always stops by Starbucks for a cup of latte on the way to work every morning. Normally, it costs 3,800 won ($2.50) but she pays only 3,000 won because she gets a 20-percent discount if she buys it with her credit card.
Choi also prefers to pay for various goods and services with the credit card because she can deduct the expenditure from taxable income for a large tax refund at the end of the year.
But it may soon be impossible for her to purchase her discounted latte, with the government and the governing Grand National Party (GNP) moving to allow retailers to refuse plastic for transactions worth less than 10,000 won. It is apparently designed to appease disgruntled credit card firms suffering from falling card transaction fees in recent years.
Card issuers have been forced to slash fees charged to small retail shops over the years as part of government efforts to help some 1.47 million small businesses accept credit cards as a payment option amid the continuingly sluggish domestic consumption.
In December 2006, small shops paid an average of 5 percent of sales in transaction fees. But it fell to 3.3 percent a year later. Now, the average transaction commission accounts for 2.2 percent of sales. Card firms are estimated to have incurred the combined 500-billion-won losses in revenue due to a series of cuts in settlement fees.
GNP chief policymaker Yim Tae-hee said recently that the governing party is considering allowing retailers to reject plastic if consumers purchase goods and services worth less than 10,000 won. Currently, shops are required to accept credit cards as a payment option, regardless of the transaction amount.
If the measure materializes, Choi would have to buy at least three cups of latte to get a 20-percent discount if Starbucks refuses to accept the credit card for small-sum transactions.
When a consumer settles a 10,000-won transaction with a card, card issuers now receive 2.2 percent of sales (220 won) as a transaction commission. There are various fixed costs that card firms have to shoulder, including transaction-processing fees. The larger transaction amounts become, the more income companies generate.
``We have to pay the fixed costs for each transaction, regardless of the amounts. So, if the settlement is large, we generate more income from the card usage. The transaction of 10,000 won is our break-even point. If it is lower than that, we incur losses,'' an executive at a local card issuer said.
Card firms and retail shops are expected to welcome the restriction, but consumers will certainly not be happy about the measure.
An official at the Consumer Union of Korea said shops want to get paid in cash, not because of high card transaction fees, but because of tax reasons.
``Small business owners have been complaining about high transaction commissions, worsening their bottom line. But they have a different reason. Many want to avoid paying taxes because card transactions are reported to the tax authority, making it impossible to underreport earnings,'' she said.