As you sit in your office in New York, San Francisco or even Tampa, it is easy to think that credit cards are the same anywhere in the world but although acceptance is shared through the payment networks, financial, legal and social intricacies vary.
South Korea is a perfect example. The government has been a driving force to establish credit cards for two decades, to help bring advance economic reliability and financial inclusion. The Republic of Korea had weak infrastructure in card acceptance in 1980, and in the middle of the decade, the entire credit process went into default as credit policies lacked robust credit bureau infrastructure and credit scoring.
The Central Bank of Korea helped advance the use of credit and financial inclusion, and today the country has one of the highest banked rates in the world. 95% of the country have financial accounts, 75% have debit cards, and 64% have credit cards. These numbers overshadow penetration in the US and UK.
Today’s read comes from a Korean news agency which will likely have a global impact.
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South Korea’s SMEs Minister Hong Jong-haak on Monday vowed to make various efforts to ease the burden of small business owners amid the spike in the country’s minimum wage and reform the nation’s economic structure
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The policymaker, who heads the Ministry of Small and Medium-sized Enterprises (SMEs) and Startups, said the government will work in various ways to increase profits of small business owners, amid the rising criticism that the recent hike in wages is a heavy burden on small entrepreneurs.
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Hong also acknowledged that small business owners viewed credit card processing fees as being too expensive, and claimed that the government will seek to adopt a new transaction system and reduce such costs to nearly zero.
Korea accepts MasterCard and Visa, but the country also has its domestic payment brand, called BC Card. Similar to Union Pay in China, ELO in Brazil RuPay in India, or Interac in Canada, cards operate outside the branded payment network and transact within the country.
From the SME minister’s statement, it appears that Korea will be addressing merchant interchange with price controls driven by cost accounting. This will be the first significant effort in central Asia. In the Asia Pacific region, Australia has been very active in slashing merchant interchange for a decade, but little reform exists in Eastern Asia.
European card issuers are subject to massive controls, and very recently, Canadian markets follow the European standard.
Dodd-Frank imposed debit card interchange in the US but ignored the robust credit card market. Card issuers need to keep an eye on this topic as we approach the next presidential campaign cycle, which could bring the 1.75% US rate closer to where controlled markets, which operate closer to 40 basis points. The impact to US card issuers: Keep an eye on costs and risks because similar controls could certainly migrate to this market.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group