Delivery fee cap risks shifting costs to riders, consumers

Pending bills at the National Assembly proposing a cap on delivery platform fees charged to food businesses to reduce their financial burdens, particularly small businesses with limited customer bases, are raising questions about the effectiveness of the proposed changes.

Industry experts have examined the current ecosystem, which consists of food-ordering platforms, participating businesses, customers who place orders and riders who deliver them. They found that the cap could reduce the burden on businesses using the platforms but shift that cost to other groups in the ecosystem, such as riders and consumers.

Three bills proposing different versions of the cap are pending at the National Assembly. One was proposed by Rep. Lee Kang-ill of the ruling Democratic Party of Korea, a member of the National Policy Committee. He proposed capping the combined brokerage fee, payment processing fee and advertising expenses at 15 percent of an order's value, while imposing a separate cap and a minimum floor on delivery fees. Rep. Park Jeong-hun of the main opposition People Power Party (PPP) proposed applying the same 15 percent cap to the combined total of all four fees.

The pending bills have already raised questions about whether delivery fees should be included in the cap. Calculations, however, show how such a regulation could disrupt the industry ecosystem.

Under the current fee structures of the country's largest food-ordering platforms, including Baedal Minjok and Coupang Eats, a restaurant receiving an order worth 20,000 won ($14.88) through a platform would pay a delivery fee of 3,300 won, equivalent to 16.5 percent of the order's value — already exceeding the proposed 15 percent cap. Including a payment processing fee of 600 won and an additional fee of 400 won, the total fees would amount to 22 percent of the order's value, exceeding the proposed cap.

Because delivery fees account for the largest share of the total fees, the most straightforward way to comply with the cap would be to lower them. The Delivery Platform Workers' Union, however, warned in a statement issued Oct. 2 that such a move requires careful consideration.

“The delivery rate is directly linked to the wages for delivery workers … If there came a new system that lowers the fees for the platform-using businesses, there must also be another system that prevents the former system from transferring the reduced burden to get at the delivery workers’ wage rates,” the union said.

“Unlike the restaurant businesses that were given the right to negotiate with the platform operators, delivery workers are still not given those rights. Future decisions on the cap will have to be made based on transparent data sharing that shows how the new regulations on the fees will affect the delivery workers’ wages.”

The PPP issued a statement Saturday opposing the proposed cap. It said the bill could end up “backfiring on public livelihood, shifting new burdens onto small business owners, rather than protecting them.”

“The issue lies not in its intent, but in its execution," the party said. "Uniform price controls that disregard market structures will ultimately backfire, returning as a boomerang to small business owners, consumers and riders alike."

Scholars and industry experts also discussed ways to reform the industry's existing fee structure at a seminar last month.

Jun Joo-yong, a professor of economics at Dongguk University, said at the seminar, jointly hosted by the Korea Association for Telecommunications Policies and the Korean Competition Law Association on Sept. 30, that policies for the food-ordering industry “should not pose a burden to a single group in the ecosystem” but that “instead, the burden must be shared by all players in the ecosystem.”

Ohk Kyung-young, a professor of consumer economics at Sookmyung Women's University, said at the same seminar that the cap would reduce fee revenues for platform operators, potentially prompting them to scale back benefits for platform membership subscribers, such as coupons and discount events.

"The weaker a small store’s own customer base, the more critical customer influx through platforms becomes," Ha Myung-jin, secretary-general of the Korea Online Shopping Association, said at the seminar. “If regulations stifle services aimed at acquiring new customers for small stores and restrict the choice of diverse pricing plans, the very small business owners we intend to protect could end up losing their opportunities for growth.”