By Kang Seung-woo
Credit card issuers currently have little room to breathe, as their clash over “swipe fees” on card payments with small restaurant owners is rapidly stretching to other sectors.
Following the restaurant owners, gas stations, real estate agents, private institutes and even conglomerates are also pressing card firms to slash the commissions they have to pay.
In October, small restaurant owners staged a rally against hefty card fees, accompanied by growing pressure from politicians, and achieved a commission cut.
At that time, card companies announced they would lower the fees for small- and medium-sized enterprises earning less than 200 million won ($176,400) per year from over 2 percent to 1.8 percent early next year.
Right after the agreement with small retailers, Hyundai Motor, the nation’s largest automaker, embarked on a war with credit card companies. The auto giant demanded issuers lower their fees by 0.5 percentage points to 1.7 percent, warning it would stop accepting credit cards for the sale of its cars unless the companies accept its demand. Initially, Hyundai banned customers from buying its vehicles with KB Card, but the firm snubbed the carmaker.
Later, KB joined six other players, including Samsung, BC and Shinhan, to accept the demand, which drew criticism from Financial Supervisory Service (FSS) Governor Kwon Hyouk-se.
“It is not proper and deliberate to cut commission for a large company, while there is a growing demand from smaller merchants plagued by the weakening economy,” he said.
He also said that the lowering of the rate is likely to cause losses to card firms from their commission income.
“As sales of cars via credit cards are big transactions — at least 20 million won at a swipe — card companies have no choice but to accept Hyundai’s demand,” said an official of the card sector.
“In addition, Hyundai has more than 40 percent of the market share in the local auto industry, which forces card issuers to yield to it.”
According to the card industry, the amount consumers’ spend on Hyundai cars via credit cards annually exceeds 10 trillion won.
Following the reduction for Hyundai, the three other local automakers — Renault Samsung, GM Korea and Ssangyong Motor — are also pressing card firms to lower their fees to the same level.
Small- and mid-sized service businesses ranging from private institutes to room salons are pushing for card fees to be lowered to 1.5 percent, the amount golf courses and large discount stores are charged, while life insurance companies and gas stations have also voiced their dissatisfaction.
They are expected to take more serious action against card players, such as boycotting certain cards which carry higher commission rates.
Card firms say it is absurd that all industries are trying to jump on the bandwagon amid growing pressure to slash swipe fees and there should be no further cuts for small industries after they lowered the rate to 1.8 percent.
Fees have been reduced over the past few years, with the average dropping from 2.36 percent in 2005 to 2.07 percent in 2010. If the October plan is implemented next year, the average is expected to break the 2 percent level.
To make card firms’ situation worse, they appear to have no options to make up for a possible loss from the commission cut.
According to the card industry, commission revenue makes up 60 percent of profits.
They originally planned to reduce various services that check cards offer to deal with decreased profits, but the financial authorities put a brake on the move because they will promote check card use with comprehensive measures, to be released later this month, to contain growing household debt.
The FSS has already given a message to card firms that it would not accept the scaling down of benefits for customers and is closely monitoring the situation.