Card firms aim to break deadlock with last offerCredit card companies are quickly taking action to calm the rising public indignation over high commission rates.
About 100,000 small businesses, mostly restaurants, are planning to hold a mass rally tomorrow demanding that credit card companies lower their commissions. The rally is being organized by the Korea Restaurant Association.
According to sources in the financial industry, credit card companies are considering shaving 0.2 percentage points off the average commission rates of 2 to 2.15 percent that are currently levied on small businesses.
They will also expand the category of small businesses which receives lower commission rates to include companies with annual revenue of less than 200 million won ($173,000). At present, only companies with revenue of 120 million won or less are eligible for the lower fees.
“The changes being considered represent our final offer,” said an official from one of the credit card companies, who requested that his name not be used.
But the proposed changes may be a case of too little too late as the restaurant association is demanding a revised commission rate of 1.5 percent.
Similar demands are being discussed by owners of Internet PC rooms and gas stations, who are planning a large rally to demand a change of policy on the rates by the end of this month.
The controversy flared up early last week when Korea’s financial regulators said they were preparing to propose a bill that would allow businesses, including taxi companies, to refuse credit card payments of less than 10,000 won.
This targeted a common complaint by restaurateurs that they lose, for example, 200 won for every payment of 5,000 won they receive, with half going to the credit card operator and the other half being spent on commission.
But the government’s plan backfired as restaurant owners and other small vendors rejected the idea on the basis that they would lose or anger customers, creating more headaches instead of revenue.
At present, owners of small businesses, if they refuse small payments by plastic, can be sentenced to up to 12 months in prison or slapped with a fine of 10 million won due to a law passed in 2001. The government passed the law to encourage consumers to use credit cards and enhance transparency in accounting practices.
Since then, credit card spending has spiked in the country from 43 trillion won in 1999 to 290 trillion won at the end of 2009.
Restaurant owners are now stepping up their calls for the government to force credit card companies to lower their rates, which they see as unfair in comparison to those applied to other industries.
The restaurant association claims that large retailers only pay between 1.6 and 1.9 percent, while golf clubs pay 1.5 percent in commission.
It said that credit card companies, which are expected to post huge profits this year, were doing so at the expense of small businesses, as they account for 70 percent of their commission-based earnings.
According to the Financial Supervisory Service, credit card companies excluding KB Kookmin Card, which was spun off from Kookmin Bank earlier this year, posted a 701.6 billion won net profit in the first half.
But the companies argue that they cannot lower their fees much more as they have already done so four times since 2007.
They also claim that their income from small businesses does not even amount to 10 percent of their total revenue even though this sector accounts for 60 percent of their client base.
Meanwhile, in a statement released yesterday, the Korea Federation of Banks said that the income leading banks glean from credit card transactions is significantly lower than it is in most other major economies.
Citing a study by the Korea Institute of Finance, the federation claimed that such profits accounted for an average of 7.1 percent of Woori, KB and Shinhan banking groups’ total profit between 2008 and 2010. This was far lower than the average rate of 38.4 percent seen in 10 major economies, including the U.S., France, Germany and China.
By Lee Ho-jeong, Kim Hye-mi [firstname.lastname@example.org]
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