Commissions costly for small shops

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Commissions costly for small shops

Small shops in Korea pay an average 320,000 won ($269) every month in commissions to credit card companies, taking a big bite out of their profitability.

According to data submitted from the Financial Supervisory Service and the Credit Finance Association to Rep. Kim Hee-kook of Saenuri Party on Wednesday for a parliamentary audit, Korean card companies made profits of 9.96 trillion won last year just from collecting commissions from retail clients.

Eight Korean card companies - Lotte, BC, Samsung, Shinhan, Woori, Hana, Hyundai and KB Kookmin - saw their annual profits coming from commissions steadily rise over the past few years.

The eight card companies in 2011 made 8.57 trillion won, and the profits rose every year to post 9.96 trillion won last year. The profit is expected to exceed 10 trillion won this year, according to FSS.

BC Card profited the most, at 2.5 trillion won in 2014, followed by Shinhan’s 1.9 trillion won and KB Kookmin’s 1.3 trillion won.

The eight card companies had some 2.35 million business clients in total, which paid an average 3.84 million won per year.

Of those clients, 1.73 million were small shops with annual sales under 200 million won, while only 62,000 clients were larger businesses making more than 200 million won a year.

Currently, the small shops with annual sales under 200 million won have to pay 1.5 percent in annual sales to card companies as service commissions, while those making between 200 million to 300 million won pay 2 percent.

Lawmaker Kim said card companies should adjust the commission level to reflect the average sales of small businesses, pointing out that more than half of the small business operators in Korea reportedly earn less than 1 million won a month.

“It is almost obvious for those owners to complain about the card industry, which makes about 10 trillion won just from service commission,” said Kim.

“The National Tax Service data showed that almost 56 percent of Korea’s owner-operator businesses reported a monthly income of smaller than 1 million won,” Kim emphasized. “It is a structural problem that small shop owners face the fee burden.”

According to the Korea Small Business Association, individually owned small businesses account for about 27.4 percent of the whole domestic business environment, which is higher than the average in the Organization for Economic Cooperation and Development.

Reflecting the low profitability of the mom-and-pop stores, the main opposition New Politics Alliance for Democracy last month submitted a bill to lower the commission rate to 1 percent, but the bill is stuck in committee.

The lowered commission would allow small store owners save an average 650,000 won every year, about 53,000 won a month, the party estimated based on a report from the Bank of Korea.

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