No political logic for card rates

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No political logic for card rates

Credit card companies are coming under attack from a range of merchants demanding they cut their commission rates. In a bid to raise profit margins, gas stations, hotels, convenience stores and even drinking parlors have joined in the chorus of calls for reform and threatened to stage a large demonstration if these are not met.

And such protests are anything but an exercise in futility, as recent events have shown. Restaurateurs resorted to strike action last month and received the support of politicians, who joined their rally in Seoul and vowed to work toward lowering commission charges.

The government later exerted pressure to persuade the credit card industry to cut the rates to below 2 percent. Politicians went further and promised to aid attempts to further reduce the rates to 1.5 percent for all merchants, meaning that much of the political circle has encouraged the public to take to the streets to voice their demands.

The credit card commissions, especially the way they are charged, are problematic. Even the credit card industry concedes it cannot quite fathom how the 30-year-old rates, which are levied at different rates by industry, were established. The rates have no guidelines or consistency and seem to be adjusted at the whim of the government. For instance, the authorities cut the rates for transactions made at hospitals and open markets in order to encourage credit card use in those areas.

But policy change requires formal steps, otherwise the legal system and related ordinances become redundant. Credit card companies must make sure they deal transparently in their own affairs, especially when these pertain to commission fees. They must lower them at their own discretion, not due to external pressure.

The government must also devise a long-term solution to this problem, which means revising its policies to fit the times. Instead of credit card services, it should promote debit or charge cards. Although credit cards are a form of borrowing, their use is encouraged over cash payments here.

Merchants should also be given more authority to bargain directly with credit card companies on setting transaction rates. They should consider employing a competition-based system, which would allow a pool of merchants to sign contracts with those companies that offer the lowest rates. Other companies can sign up when they accept the lowered rates.

Business deals should be dealt with in business circles without undue political pressure.
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