Small online vendors irked by inconsistent credit card fees

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Small online vendors irked by inconsistent credit card fees

Small businesses that sell most of their products online feel nettled by what they see as discriminatory credit card charges.

While small shops and restaurants succeeded in lowering the commission rate imposed by credit card companies to 1.5 percent as the result of a long battle that began last year, the rate imposed on online businesses remains at 3.5 percent.

A 33-year-old surnamed Park sells men’s fashion wear on the Internet. Park said he earns roughly 3 million won ($2,615) in sales every month, but takes home only about one third of this after subtracting delivery and office rental costs. He sees the commission rate on credit card use as being grossly unfair.

“The situation for online merchants has not improved, even though there are a lot more credit card payments on the Internet.”

Online merchants are excluded from the newly revised credit card commission rate system that takes effect in September after having been sanctioned by the financial regulators.

According to the new system for setting the rates, businesses with annual sales of 200 million won or less will be able to enjoy the lower 1.5 percent rate.

However, this does not apply to small online businesses as they have no direct contract with credit card companies. Instead, they usually sign contracts with payment gateway (PG) service companies that specialize in transacting e-commerce payments, including those made via credit card, mobile phone or wired between institutions online.

According to the industry, Internet merchants pay a commission rate between 3.3 percent and 4 percent on credit card payments. This is far higher than the minimum 1.8 percent rate that was imposed on offline stores, and even lower than the overall average of 2.1 percent.

The reason why online merchants have no direct contracts with credit card companies is because of the nature of e-commerce. As Internet businesses are intangible, credit card companies lack sufficient trust to sign contracts with them.

This is where the PG companies step in, guaranteeing the credit card transaction and feeding off the high commission rates. The structure is the same for the e-commerce marketplace, where companies like Amazon and eBay, or Korea’s Auction and Gmarket, allow private merchants to upload and sell their products on a public platform.

Instead of renting out the virtual space, the operators charge commission rates of between 5 and 12 percent on sales. This includes not only handling the credit card payments, but also marketing and advertising costs.

“As our company is unlikely to receive any benefit from the new commission-rate system, it’s not easy for us to offer any benefits to our registered merchants,” said an employee from an online marketplace operator.

By Lim Mi-jin []

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