FSC wades in on VAN payments

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FSC wades in on VAN payments

The financial authorities want to lower VAN fees paid by merchants like mom-and-pop bakeries, convenience stores, laundries and supermarkets from the second half of the year.

The Financial Service Commission (FSC) said yesterday that it plans to streamline the VAN fees through a task force that includes the credit card industry, the Korea Development Institute (KDI), Samil PricewaterhouseCoopers and VAN Association.

In Korea’s credit card industry, VAN companies offer terminals and VAN networks to merchants, providing credit card inquiry services and calculating settlement data for card companies, charging a VAN fee to card companies. VAN operators take an average of 90 to 150 won per transaction when a consumer uses a credit and debit card.

Merchants pay commissions to credit card companies, which include the VAN fee.

Small vendors have complained that the VAN fees are a bigger financial burden on transactions of 10,000 won ($9.04) or less.

The FSC expects to cut 0.2 percentage points of the commission charged to merchants by credit card companies.

Of the 8 trillion won merchants paid in commissions to credit card companies last year, VAN fees amounted to 700 billion won, about 8 percent. For merchants with more small transactions, the proportion spent on VAN fees was larger.

According to the FSC, payments of 20,000 won or less at small merchants soared from 25.8 percent of sales in 2003 to 54.4 percent last year.

At small self-employed vendors such as convenience stores, the average transaction is 6,800 won. At bakeries it is 13,300 won, laundries 16,900 won, supermarkets 22,800 won, restaurants 33,500 won and butcher shops 40,800 won.

“Eventually, self-employed vendors are shifting the burden of these VAN fees onto consumers by reflecting it in prices,” said an FSC official.

The financial watchdog also pointed out that the current VAN fees system in the retail industry runs counter to the new government’s economic democratization ideals, which are supposed to help little players.

There are many VAN service providers and competition among them is overheated.

There are currently 13 VAN companies in Korea including KICC, KS Net, NICE I&T, Koces, KIS, Kovan, KFTC, Smarto, CCK VAN, TCI and KMPS.

The FSC plans to determine the final fee rationalization during the first half the year.

The clash between VAN operators, credit card companies and merchants is expected as a streamlining of VAN fees will benefit credit card companies and merchants but reduce profits of VAN operators.

By Kim Jung-yoon [kjy@joongang.co.kr]
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