Credit card firms to cut transaction fees

Regulator’s move to promote ‘shared growth’ is met with protest


Korea’s major credit card firms said on Monday they would slash the transaction fees they collect from small merchants as a reluctant response to the growing calls for a rate cut to bolster their shaky profits amid regulatory pressure.

Shinhan Card, a credit card unit of the Shinhan Financial Group, said it would lower the transaction fee rate from 2 percent to 1.6-1.8 percent for the small companies who have long been subjected to the punishing transaction fees, payable even for purchases of less than 10,000 won.

The company also confirmed it would loosen annual revenue standards to qualify small merchants ― from 120 million won to 200 million ― for the lower fees. Shinhan said 2.29 million merchants, or 87 percent of its entire corporate clients, would benefit from the expanded categorization.

The new fee rate will go into effect from Jan. 1 after a necessary revision to the credit card transaction network systems.

Taking cue from Shinhan’s move, other credit card firms quickly announced their plans to cut the rate. Samsung Card said it would lower the fee rate from 2.05 percent to 1.8 percent for small merchants from next year, while KB Kookmin Card said it would slash the rate below 1.8 percent.

Lotte, BC, Hyundai and Hana SK Card followed suit, pledging to trim the rate to below 1.8 percent for small businesses while expanding the revenue standard to qualify for the lower rate to less than 200 million won per year.

The lowering of the transaction fee rate came as the Lee Myung-bak administration is staging its “shared growth” drive with key government agencies and regulatory bodies putting pressure on firms in the private sector.

Korean credit card firms have been applying favorable transaction fees to only large retail chains, while charging a regular fee for small players ― a practice that recently prompted the country’s financial regulator to consider allowing merchants to reject small card payments.

The plan to restrict small payments has been scrapped for fear of dampening the already worsening spending sentiment amid growing worries over the country’s slowing economic growth.

In a related move, SK Securities issued a report arguing that the government’s regulation aimed at lowering the transaction fees could hurt the earnings of credit card firms and raise management risks.

The report said that the credit card firms earlier cited “regulatory risk” as one of the most serious management risks, and the latest regulatory pressure is far greater than earlier predicted. “Sales expansion is limited for fear of adding to household debt, and pressure to lower fees is becoming greater, which will make it hard for credit card companies to secure profits for a while,” it said.

SK Securities does not hold a stake in Hana SK Card, but the two firms are indirectly related as SK Telecom is the second-biggest shareholder of the credit card company a 49 percent stake.

Due to the affiliation, SK’s latest report is interpreted as a show of protest against the regulatory move to intervene in the credit card transaction fees.

The Financial Services Commission, meanwhile, said it would consider asking financial companies to stack up more reserves in a bid to limit what are perceived to be unfair dividends paid to their shareholders and top executives, a move that is in line with the government’s focus on nurturing a fair society.

Although Koreans are not joining the Occupy Wall Street demonstrations actively, public anger exists over some financial firm executives who take away hefty salaries and extremely generous dividend payouts. The banking and brokerage circles have yet to express their stance toward the FSC’s plan to limit the existing compensation system, but their silence is widely deemed as a subtle sign that they would not accept such a regulatory move.

By Yang Sung-jin (insight@heraldcorp.com)