Following growing protests from small merchants against credit card companies, South Korea’s major card networks announced Oct. 17 that they would cut the interchange fees they collect from such merchants, confirms an official at the Credit Finance Association of Korea, which represents card companies, banks and insurers.
Merchant acquirers pay interchange fees to issuers and pass along the expense to their merchant customers as part of the discount rate, which also covers processing and other costs. Card networks set the interchange rates.
Among the first networks to reduce its rates was Shinhan Card Co. Ltd., which says it will lower the interchange rate to 1.6 to 1.8% of the sale from 2% for small merchants accepting its branded cards effective Jan. 1.
Following Shinhan’s announcement, Samsung Card Co. Ltd. announced that it will lower its interchange rate to 1.8% from 2.05%, while BC Card Co. Ltd., Lotte Card Co. Ltd., Hyundai Card Co. Ltd., Hana SK Card Ltd. and KB Kookmin Card Ltd. say they would bring their rates for small merchants to below 1.8% of the sale.
The rate cuts follow a week of turmoil during which the Financial Services Commission, Korea’s financial services regulator, said it was considering amending the rules to allow merchants to reject credit cards for small payments.
Under rules set by the Credit Finance Association of Korea, a merchant refusing a credit card transaction faces up to one year in prison or fines of up to 10 million won (US$8,707 or 6,340 euros).
The regulator was considering lifting the rules to counter financial pressures on Korean businesses affected by an economic slowdown that still have to pay fees for purchases of less than 10,000 won.
Instead, Korean merchants demanded that the regulator pressure card networks to cut their interchange rates instead of adopting a rule that might result in businesses losing customers.
Card companies give better rates to retailers with annual revenues that exceed than 200 million won. However, with the new initiatives, they will loosen this qualifying standard to offer the lower rates to retailers with revenues ranging from 120 million won to 200 million won.
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