Problem involving discrimination of merchant fees by credit card companies has become an issue again as small and medium franchise groups such as Korea Mart Association is looking into filing a lawsuit by claiming it as an unfair issue.
However, this issue is causing a stir as regulations within Specialized Credit Financial Business Act that can penalize such discrimination are unclear.
According to industries, toleration of discriminatory act by credit card companies on merchant fees is causing an issue.
While strict regulations were imposed when large franchise stores were requesting reduction of merchant fee rates and when VAN (Value Added Network) companies were giving rebates, there are blind spots when it comes to penalizing credit card companies.
Some are seeing that financial authorities are not controlling markets properly and are only looking at South Korean Government’s moves while there are unfair merchant fee rates between large franchise stores and small franchise stores.
Problematic bills are Article 18 Protocol 3 and 4 of Credit Financial Business Act that include information on prohibition of discrimination of merchant fee rates between franchise stores.
According to these protocols, credit card companies need to come up with merchant fee rates fairly and reasonably and not have discriminated rates between franchise stores.
In addition, they prohibit large franchise stores from making unfair requests by using their superiority. Some of these unfair requests include a request for unfairly low merchant fee rate from credit card companies and a request for price regardless of means or names.
They also list harsh punishments such as 5 years of imprisonment or $27,000 (30 million KRW) of fine.
It is listed in Protocol 4 that Financial Services Commission (FSC) can request change of Protocol 4 or take necessary actions when credit card companies and credit card franchise stores violate Protocol 3 and 4.
However, there are different views towards this protocol. Markets point out entrusting FSC with discretionary power to punish credit card companies is a problem even though there is still discrimination between merchant fee rates between franchise stores.
However, financial authorities are claiming that it is normal for competent department to decide appropriate sanctions. This raises a question whether it is truly effective for FSC to make requests with discretionary power.
When financial authorities turn a blind eye, credit card companies make discrimination with their merchant fee rates without any punishment.
“Problem involving discriminatory fee is a condition that must be obeyed by franchise stores.” said a representative for Credit Finance Association. “Credit card companies will receive severe punishments from financial authorities if they hand out unfair rates.” However, VAN industry and VAN licensed stores claim that these punishments must be clearly stated by including credit card companies and Specialized Credit Financial Business Act.
Prime example is downsizing by credit card companies that has caused a controversy recently. Credit card companies are planning to expand ‘downsizing VAN’ that directly approves credit card payments between credit card companies and franchise stores without involving VAN companies. Downsizing VAN is a system that reduces production cost by eliminating some of processing tasks. If franchise stores receive about 20% of VAN fee that is received by credit card companies, credit card companies intend to reduce amount of fee that corresponds to half of remaining 80%. In that case, merchant fee for large franchise stores drops significantly.
Although this is clearly a plot for discriminatory merchant fee rates, FSC has taken credit card companies’ sides through authoritative interpretation after regarding it as a discriminatory act initially.
Staff Reporter Gil, Jaeshik | osolgil@etnews.com