'Gov't policy favors fintechs over card firms'

Names of credit cards and payment service providers at the entrance of a restaurant. Korea Times file

By Lee Kyung-min

The government initiative to nurture fintechs in the financial market neglects existing industry players, leaving them demoralized despite years of contribution to the advancement of payment and settlement services, a private institute report and industry officials said Sunday.

In a 48-page report released by an institute that studies card, lease and installment financing businesses under the Credit Finance Association, the authors said the current government regulations essentially discriminate against traditional financial services providers ― notably card firms ― favoring budding fintechs. The association has card firms among its members.

Many fintechs including platform operators and payment device makers, the report said, increasingly offer payment and settlement services as of late, but their legal status has yet to be clearly defined for them to be governed by a set of stringent regulations some traditional market players are subject to.

This, it added, points to a growing need for financial authorities to revise related laws to apply the governing principle of “equal regulations for equal services.”

“Heightened uncertainties concerning legal and security risks stemming from new payment service providers has increased the need to revise the law,” the report said.

Despite the measured tone, the report pointed out that some financial services providers such as Kakao Corp. and Naver, for example, are classified as financial entities yet are not subject to the same stringent government rules as card firms.

Worse yet, Samsung Electronics, the service provider of Samsung Pay, under the current law is not classified as a financial entity at all, remaining essentially free of any government regulations.

This lax rule has long enabled some budding tech giants to dodge heavy rules on marketing fee caps, not to mention card transaction fee reductions, a measure card firms consider was “forced” on them under the name of reducing the burden suffered by small and medium-sized enterprises (SMEs) that long claimed the fees were the major reason for the deterioration of their bottom lines.

Data from Rep. Yoo Eui-dong of the centrist Bareunmirae Party showed 55 payment service providers spent over a combined 100 billion won ($85.6 million) in marketing fees in 2019.

Of them, Kakao-affiliated Kakao Pay and Toss, a mobile money transfer app owned by Viva Republica, spent 49 billion won and 13.4 billion won, respectively.

This, from the card firms' perspective, is the definition of discrimination.

“We had a particularly hard year in 2019 due to the pressure to cut transaction fees, an issue that hurt us alongside marketing fee caps amid an industry-wide downturn,” said an industry official who asked not to be identified.

“It is understandable that the government is pushing to foster fintechs, but not at the expense of the traditional players that helped build the infrastructure of the country's financial system and made continued efforts to innovate the industry. The rules should address the discriminatory status quo.”

The suppressed outrage comes partly from the fact that the card firms are to mobilize firm resources to deal with server overload from large traffic volumes, a considerable part of which is caused by fintechs that are allowed to share the card firms' servers without the responsibility to solve overload problems.