Ahead of the presidential election, the card industry is on edge. This is because there may be calls from the political sector to lower card processing fees for small and micro businesses. The card industry has long lamented that adjustments to the card processing fees have been determined by political logic rather than economic logic.
According to the card industry on the 30th, Lee Soo-jin, a member of the Democratic Party of Korea, proposed a revision to the Specialized Credit Finance Business Act last July to apply preferential credit card processing fees to medical and clinic franchisees. The intention is to reduce the card processing fees that medical institutions, pharmacies, and health centers bear. Card companies will inevitably face deteriorating revenue as their fees from franchisees decrease. The bill is currently under review by the relevant committee.
Rep. Min Byung-deok of the Democratic Party of Korea, who is listed as a proponent of this proposed amendment, claimed last month that card companies increased processing fees for general franchisees, leading to increased consumer burdens. As card companies' profitability decreased due to lowered fees for small and micro businesses, they raised fees for general franchisees to compensate for lost revenue. The Card Company Labor Union Council immediately issued a statement rebutting Rep. Min's claims. Min, who serves as the Chairperson of the Euljiro Committee in the Democratic Party, pointed out that card companies also profited during the TMON and WeMakePrice refund delay crisis.
On the other hand, the card industry asserts that adjustments to card processing fees and the expansion of preferential fee applications for franchisees are determined by political logic. They argue it is a populist decision aimed at appealing to small business voters. Reductions in card processing fees have consistently emerged as a frequent promise during significant elections, with all candidates announcing them during the 2017 presidential election.
This year, the card processing fees for small and micro businesses range from 0.4% to 1.45%, a decrease of 0.05% to 0.1% points from last year. The fee for small franchisees with annual sales below 300 million won has dropped from 0.5% to 0.4%, while those with annual sales between 1 billion and 3 billion won have seen a decrease from 1.5% to 1.45%. Franchisees subjected to these fee rates account for 96% of the 3.1 million nationwide. Financial authorities have analyzed that around 3,046,000 franchisees will benefit from an average fee reduction of 8.7%.
The processing fees for small and micro businesses were at 2% to 4.5% in 2007. However, when the qualified cost calculation system was introduced in 2012, the pressure to lower fees began in earnest. The qualified cost calculation system determines whether the fee rates are appropriate by considering all costs incurred in the card payment process, after which they can decide on reductions or increases. However, there has never been an instance of fee increases since the system's introduction. Card processing fees have been reduced 15 times from 2007 to last year.
Due to the continued reduction in processing fees, rising arrears rates, and economic downturn, the card industry's performance is declining. Shinhan Card, which lost its position as the leading card issuer, reported a net profit of 135.7 billion won in the first quarter of this year, down 26.7% from 185.1 billion won in the same period last year. KB Kookmin Card recorded a 39.3% decrease to 84.5 billion won, while Hyundai Card saw a 3.8% drop to 61.4 billion won. In contrast, Samsung Card recorded a 3.7% increase to 184.4 billion won, becoming the only one of the top four card companies to see an increase in net profit.
A card industry official noted, "When the timing of calculating qualified costs coincides with election season, we have always pondered how to respond to demands for fee reductions," adding, "It would also be difficult for the political sector to call for raising the fees."