Online firms face FTC over late payments

The Fair Trade Commission (FTC) is investigating the practices of social commerce businesses in their financial relationships with sellers.

Commission agents visited the headquarters of Coupang and Ticket Monster on Monday, government and industry sources said.

Social commerce sites are a subset of e-commerce and combine social networking activities with online sales.

The initiative by the commission was not unexpected. A recent FTC survey of 1,600 smaller manufacturers and distributors, including those who sell through online outlets, turned up some indications that social commerce sites were habitually delaying their payments to manufacturers that were selling goods on those sites.

“The retail industry is changing rapidly right now, and we will do our best to deal with unfair activities going on in the social commerce sector,” said Jeong Jae-chan, chairman of the FTC, at a meeting with small manufacturers last month.

At the time, Jeong promised the manufacturers that he would begin an investigation this month.

Social commerce companies here portrayed themselves as doing nothing for the moment but watching and waiting.

However, the companies generally defended their practices as proper, even necessary.

“It does somewhat feel like trying to regulate the new growing industry, but I am too cautious to comment on this issue, considering how bad the social atmosphere toward us is,” an employee at a social commerce company said.

Others, also not wishing to be named, are more blunt. They say that, in short, the FTC does not understand the concept of social commerce.

“Many customers return items they have purchased, and social commerce companies need to keep the money they receive for a while rather than pay manufacturers immediately,” a senior employee at one of the companies said.

The two companies under investigation are no small operators. Both have annual revenues of more than 1 trillion won ($865 million) from their social commerce businesses.

If found guilty of illegal practices, the companies could face fines corresponding to 60 percent of the payments that they withheld from manufacturers.

BY CHO HYUN-SUK, LEE SO-AH [kim.youngnam@joongang.co.kr]