Due to South Korean Government’s effort to reduce credit card fees, a problem has finally risen within credit card market. 11 VAN (Value Added Network) companies are filing a legal lawsuit on Lotte Card for a suspicion of unfair contract.
According to legal and financial industries, 11 VAN companies have decided to file a lawsuit against Lotte Card within this month at the earliest through HMP Law Firm. They are also looking into report Lotte Card to Fair Trade Commission (FTC).
Recently, Lotte Card notified these VAN companies that it would change 50% of entire franchise stores into Electronic Data Capture (EDC) stores and eventually change 100% of them into EDC stores.
VAN companies opposed such decision by saying that Lotte Card unilaterally breached a contract without any discussion beforehand. When EDC method is introduced, VAN companies will not be responsible for approval of settlements and statement purchasing agency task and they will not receive fees between $0.012 and $0.015 (14 KRW and 17 KRW) as a result.
“Lotte Card unilaterally breached our contract to reduce financial burden from credit card fees.” said a representative for a VAN company. “This is clearly a violation of our contract and Lotte Card is emphasizing an unfair contract.”
VAN company’s agency business can be divided into recruitment of franchise stores, approval of transactions, purchasing business, and management of franchise stores. Out of these tasks, purchasing business and management of franchise stores are the most important. Lotte Card is saying that it will take care of these tasks on its own and this will cause VAN companies to lose more than 70% of agency fees.
Most of VAN companies claim that they signed dual contracts with Lotte Card due to their practices.
It seems that this change made by Lotte Card will affect VAN agencies.
Many VAN agencies, which have been responsible for data capture consignment task, have been on a verge of bankruptcy when South Korean Government introduced Non-Signature Transaction System in 2016. As a result, credit card companies and VAN companies signed an agreement with Financial Services Commission as the arbitrator where they preserve $0.016 (18 KRW) and $0.11 (12 KRW) respectively for VAN agencies.
$0.11 is only preserved due to profits from purchasing agency fee. However, once Lotte Card removes this fee, it will be impossible for VAN companies to continue to support VAN agencies with subsidy.
It is likely that Lotte Card’s decision will be more controversial in the future as Hana Card is also looking into EDC method.
Shinhan Card, which changed its system before Lotte Card, agreed with VAN companies about partially changing its purchasing method into EDC method.
Staff Reporter Gil, Jaeshik | osolgil@etnews.com