Financial regulator asked to intervene in 'Mergepoint' saga

Angry customers flock to the headquarters of Mergepoint in Seoul, demanding refunds of their pre-paid money, Friday. Yonhap

FSS criticized for inadvertent response that triggers the 'bank-run' situation

By Anna J. Park

Financial regulators are being asked to intervene in the ongoing controversy regarding the pre-paid Mergepoint service with angry users calling for them to take responsibility over the issue.

Some accused the Financial Supervisory Service (FSS) of being negligent in its responses to questions on Mergepoint's activity, which have triggered the equivalent of a bank run on the firm.

“This company has run this business for the past two to three years, so why is it that it was never supervised by the financial regulator? It's hard to fathom why customers must bear all the damages,” an online petition on the Cheong Wa Dae website said, calling for a transparent investigation into the company.

Problems erupted earlier this month, when the FSS notified Mergepoint that it was considered an electronic finance business under the relative financial law, and the firm had to register in order to conduct business. The FSS' resonse came to an inquiry by Mergepoint regarding its legal status prior to it expanding its business with further investment.

Despite the company's pre-paid point business having been in operation for a couple of years since 2018, the FSS's notification earlier this month meant the company is an unregistered entity under financial laws. By August, over 1 million customers were using Mergepoint, as the pre-paid service offered a 20 percent discount on customers' purchases with points at stores.

Once the FSS's position was made public early this month, most of Mergepoint's 200 member stores ― mostly large retailers and convenience stores which previously agreed to accept Mergepoint as a means of payment ― stopped accepting the points as a means of payment. So customers who had purchased Mergepoint prepayment cards asked for refunds.

They are blaming the financial regulator for the situation, criticizing the FSS for failing to point out that the company did not meet legal requirements in the first place. They accused the FSS of not even understanding the legal category of the business while it was in operation.

Mergepoint aims to normalize its service as soon as possible, once legal issues are solved. However, due to the uncertainty about refunds, some customers plan to file a class action lawsuit against the firm. Over 24,000 customers gathered online to take legal action against the company.

The FSS's lukewarm response is also being criticized. At the start of the controversy, the FSS said it could not take action against the company because it was unregistered, according to related laws. It later said that it would compel the firm to register to normalize operations, and would closely monitor the situation.

Mergepoint image captured from its website / Courtesy of Merge Point

Some industry watchers point out that while the fintech industry is on a growth trajectory, the financial regulator's apparent failure to keep up with the supervision of services offered could bring about more problems similar to the Mergepoint one.

The customers ― most of whom have yet to get refunds ― also blame large internet e-commerce and major financial companies. E-commerce companies, including Tmon, 11st Street and G Market, as well as KB Kookmin Card and Hana Members had partnered with Mergepoint. These companies said they also didn't know the legal status of Mergepoint, but customers state that they also bear a certain amount of blame as consumers have more confidence in services that major companies partner with.