Feb 23, 2007

Government Investigating Credit Card Commissions

Donga Ilbo Feb. 23, 2007

There are reports of widespread discontent over the way credit card issuers charge merchants commission fees. South Korea’s financial regulatory body has begun to investigate the issue.

“We commissioned the Korea Institute of Finance to find out what costs credit card issuers face. We are going to assess whether each card issuer charges fair commissions to merchants. Then we will propose a standard for card issuers to levy a commission,” said an official from the Financial Supervisory Service (FSS) on February 22.

The Ministry of Finance and Economy will use the standard to persuade card issuers to lower excessive commission fees.

It remains to be seen if card issuers cut their commission charges in line with the FSS, however.

Merchants pay an average of 2.2 percent of total card transactions as commission to non-bank card issuers. That figure rises to 2.37 percent when they pay bank card issuers.

The commission rate varies between 1.5 percent-4.5 percent depending on the card issuer and the merchant. Small and medium-sized companies and self-employed workers end up paying more commissions than golf clubs or general hospitals as they lack bargaining power with card issuers. And they have expressed discontent over the issue.

Because of this, the Korean Federation of Small and Medium Business created a committee named ‘A Committee for Lowering Credit Card Commissions` to work on cutting those commissions by 1-2 percent points.

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SeanHayes@ipglegal.com