Credit card issuers face 50% commission cut

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Credit card issuers face 50% commission cut

Commissions that local retailers pay credit card companies will be cut by up to 50 percent within months, amid historic-low borrowing costs and pressure from small-shop owners.

As early as next January, about 2.38 million stores, or 97 percent of shops accepting credit cards, will pay less commission, the Financial Services Commission said on Monday.

Currently, “small-sized” enterprises - those making 200 million won ($175,746) or less in annual sales - pay 1.5 percent commission on credit card sales to the issuers. That will be cut to 0.8 percent starting next year.

For the “medium-sized” shops, generating revenue between 200 million won and 300 million won, the cut will be from 2 percent to 1.3 percent.

Charges for use of debit cards will be also lowered. The commission for the small-sized shops will sink to 0.5 percent from 1 percent, while that for medium-size ones will be trimmed to 1 percent from 1.5 percent.

The authorities estimate the new measures will cut about 670 billion won of commissions at stores accepting credit and debit cards. On average, a small-size store will save a maximum 1.4 million won and a medium-size one will pay 2.1 million won less.

The FSC said the commissions will be adjusted every three years, based on market conditions.

“The central bank’s rate cuts lowered the credit card companies’ cost in financing, enabling them to cut commissions,” said Yun Chang-ho, a FSC official, at a briefing. “The amount of reduced revenue for the card companies due to the cut in commissions is a level that they can endure.”

However, card companies raised concerns over shrinking profits. The FSC estimates total savings, 670 billion won, is nearly a third of the total operating profits of the country’s eight big credit card companies in 2014 - about 2.16 trillion won, according to the Financial Supervisory Service.

“The cut was larger than expected among industry insiders,” said an employee at a local credit card company. “We can’t exclude the possibility that large-size stores [such as supermarkets] will demand a cut as well.”

For consumers, benefits for paying by credit cards could be reduced, industry observers said. In 2012, when the government also cut commissions, card companies responded by removing several benefits.

Lowering credit card commissions has been a longtime wish for small- and medium-size store owners.

In 2012, a group of small-size shop owners boycotted some giant credit card issuers, such as Samsung Card or Lotte Card, saying they wouldn’t accept their cards because the companies offered a cut in commissions on the supermarkets affiliated with the companies, such as Costco or Lotte Big Market, if the hypermarkets accepted their cards.

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