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A victim of payment delays from Tmon and WeMakePrice stages a protest calling for prompt refunds in front of the Korea Chamber of Commerce and Industry headquarters in central Seoul on Sunday. (Yonhap) |
The South Korean government is considering stricter regulations on e-commerce platforms' involvement in financial services, aiming to avert another payment failure crisis amid ongoing investigations into cases involving Tmon and WeMakePrice.
According to industry sources, local financial regulators are contemplating measures to prevent the platforms from controlling vendor capital by legally separating payment gateway (PG) services from e-commerce platforms.
A payment gateway facilitates electronic transactions by transferring payment data from customers to merchants. In Korea, e-commerce platforms can offer PG services by registering themselves as electronic financial service providers with the Financial Services Commission.
The push for tighter regulation intensified after suspicions arose that the recent payment delay crisis at local online marketplaces Tmon and WeMakePrice was linked to the misappropriation of unsettled payments by their Singapore-based parent company, Qoo10.
Both Tmon and WeMakePrice, as registered electronic financial service providers, managed sales, delivery and settlements, all while controlling funds before they are transferred to vendors.
Until now, the two firms had settled payments approximately two months after transactions. However, in early July, they failed to deliver funds from May transactions, causing a major payment delay crisis. According to the government, delayed payments to vendors total about 213.4 billion won ($170 million), potentially rising to nearly 1 trillion won with future payments.
The local prosecutors are investigating Qoo10 for possible fund misappropriation, with signs of significant illegal activity discovered in the capital flow between Qoo10 and its Korean units. Qoo10 CEO Ku Young-bae admitted to sourcing around 40 billion won from the two Korean units for its acquisition of global e-commerce company Wish earlier this year, with unpaid vendor settlements incorporated in the process.
To prevent similar issues, regulators are considering requiring e-commerce firms to split the PG platform into a subsidiary, as local firms Coupang and Naver have done, or contract with external PG companies.
Regulatory frameworks will also need updating.
Current laws allow the Financial Supervisory Service to regulate "licensed" institutions, like banks, but not "registered" ones, like Tmon and WeMakePrice. As a result, despite signing agreements with the debt-laden e-commerce companies in 2022 to improve their financial soundness, the FSS could not effectively enforce these measures.
FSS Governor Lee Bok-hyun has pledged to explore options for regulatory enhancements, including establishing a dedicated organization to oversee financial services in the e-commerce industry.
Rep. Kim Nam-geun of the main opposition Democratic Party plans to propose an amendment to the Electronic Financial Transactions Act next week. The amendment would allow the FSS to issue administrative sanctions similar to those for licensed providers to registered providers with annual sales over 100 billion won.
The local prosecutors are also looking into potential Ponzi schemes involving Tmon and WeMakePrice, accused of deliberately maintaining contracts with sellers and continuing operations despite knowing of imminent payout crises.
Meanwhile, the Seoul Bankruptcy Court on Friday granted Tmon and WeMakePrice one month to pursue debt restructuring independently. They can avoid court-enforced rehabilitation if they reach an agreement with creditors. If talks fail, the court will decide whether to resume the process.
