By Kang Seung-woo
The financial regulator’s drive to introduce a minimum purchase amount to charge to a credit card in its efforts to help reeling small retailers has run into unexpected opposition the response that it is “nonsense.”
Instead, they insist that the government flex its muscles to lower hefty transaction fees if it truly wants to show support.
The Financial Services Commission (FSC) said Monday that it is considering amending current rules to allow sellers to reject credit cards for small payments. The minimum permissible transaction amount under consideration is 10,000 won or $8.54. An existing regulation of the Credit Finance Association (CFA) stipulates that a card merchant refusing a credit card transaction faces up to one year in prison or fines of 10 million won.
According to the FSC, 30.6 percent of total credit card transactions in September were for 10,000 won or less, a burden for smaller retailers who have to pay commission.
“If the new rule takes effect, there will be no business owners refusing card payments because customers will simply go somewhere else where cards are accepted,” said Kwon Bong-sin, who runs a restaurant in Jeonju, North Jeolla Province. Kwon said he paid about 2.7 percent in commission to credit card companies.
“I think that the plan will be far from being effective and I do not intend to follow it. There is only one solution for this issue; cutting credit card commission.”
Like Kwon, members of the Korea Restaurant Association (KRA) who complain of the surcharges will meet in Yeouido, Seoul, on Tuesday to protest.
“As the government’s measure is of no use to us, most restaurant owners are against the revision, and if the government continues to stick with the plan, we will declare ourselves against it,” said an official of the KRA. “The key demand of the angry owners is to lower the commission to 1.5 percent.”
The Korea Federation of Retailer Organization (KFRO) has also joined the KRA to push down card fees.
Adding fuel to the fire, people running small businesses are infuriated that card fees imposed on restaurants and stores are higher than those of lucrative businesses.
According to the CFA, proprietors of restaurants have to pay 2.1 percent to 2.7 percent of their credit card sales in commission, while golf course operators, classified as being in a luxury business, only pay 1.5 percent to 3.3 percent of their credit card sales. In the case of large discount stores and gas stations, they pay 1.6 percent to 1.9 percent and 1.5 percent, respectively.
For example, when a restaurant and a large discount store each make 1 million won in sales, the former pays 21,000 won to 27,000 won in commission, while the latter pays 16,000 won to 19,000 won.
“It is unreasonable for small retailers to pay more commission than larger businesses,” said Lee Yoon-young, a taxi driver in Seoul and pays more than 2 percent of his card sales in commission. “Card firms exploit smaller retailers.”
Civic groups also stand against the government, saying that the revision will not only limit consumer choices but also do nothing to alleviate the problem for small merchants.
“The government can fix the problem when it lowers fees for a computer network that card firms pay for and at the same time, plastic issuers reduce commission, but the government is just trying to push ahead with a plan with no convenience to consumers,” the Korea Finance Consumer Federation (KFCF) said.
“If the revision is enforced, medium- and large-sized affiliates are likely to receive card payments, which will result in customers leaving small stores for the larger ones.”
Policymakers have been pressing the card industry to adjust fees to reasonable rates.
“The government does not have any plan to control the price of the market, but card companies have to thoroughly verify the rationality of their commission rates,” FSC Chairman Kim Seok-dong told reporters on Thursday.
“Just because card companies offer social infrastructure, it is not right for them to pursue profits recklessly.”
Grand National Party (GNP) Rep. Chung Doo-un said on Tuesday: “The key issue is hefty card fees but credit card companies are showing no signs of relenting.”
“The rejection of card payments for small transactions is a case of simply shifting the burden to consumers.”
Card firms say that despite lower card fees at golf courses, large discount stores and gas stations, they can still earn profit thanks to much larger transactions there.
As for restaurants, their sales and transactions are smaller, which cannot balance the card issuers’ expenses for the computer networks and interest on charge accounts.
“The card industry has reduced commission rates on five occasions since 2007 to help smaller retailers. We pay about 150 won to 200 won for using the network, so the net margin from there is not big and it is not easy to further cut fees,” said an official of the industry.