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Higher Credit Card Fees Hit Small Businesses Hardest

Posted February. 22, 2007 03:42,   


“Credit card fees charged to laundry services are almost twice higher than those charged to golf clubhouses. How absurd is that?”

Small-and-medium sized companies and self-employed businessmen are calling for the credit card industry to lower its fees, and in response, the Korea Federation of Small and Medium Business said on February 22 that they have set up a special committee for promoting lower credit card fees. The federation said, “So far, unlike mega franchises, small-sized businesses have not had a negotiation channel for credit card fees; from now on, this committee will take on the role.”

Calls for lower card fees have been made by different business sectors, such as department stores. However this is the first time for small-and-medium sized companies and mom-and-pop shops to join forces and set up their own representational organization to ask for a lower fees.

Small and medium sized companies are complaining about relatively high credit card fees-

The committee is composed of representatives of small distribution companies and service providers such as repair shops, garment retailers and on-line shopping malls that have been unable to negotiate with credit card companies on an equal footing.

Because of their small business size, they had no choice but to accept credit card fee rate unilaterally set by card companies. For this reason, they have had to pay way higher fees than bigger businesses such as discount stores, general hospitals, hotels, and golf courses that can negotiate fees with card companies on an equal footing.

For example, credit card fees charged to laundry services are around 3.5 to 3.6 percent, while fees charged to golf courses are 1.5 to 2.0 percent. Even among distribution companies, fees differ as on-line shopping malls are paying fees of 2.7 to 3.6 percent while discount stores are paying 2.0 to 2.7 percent fees. Small medical practitioners are paying fees of 2.5 to 2.7 percent compared with general hospitals that pay 1.5 to 2.0 percent.

The chairman of the countermeasure committee, Kim Kyeong-bae, said, “In a situation where the profitability of small-and-medium sized companies is continuously falling due to the current economic slowdown, if we continue to pay one to two percentage points of our sales more than big cooperations, it is a discrimination against small companies.”

The credit card industry has tentatively rejected the call for a lower fee by small companies, however.

Franchises fees are not just a matter for small businesses.

So far, various organizations have asked for lower card fees on several occasions on grounds that, “With the sacrifice of franchise stores, only are the card companies benefiting now.” Last year alone, calls for a lower card fees were made by the Korean Medical Association, the Korean Publishers Association, the Korea Oil Station Association, and the General Insurance Association of Korea. However, the card companies refused to accommodate their demands.

The credit card companies have again rejected small business owners’ demands for a lower card fees by saying, “It is only natural that franchised stores of a large size have an advantage in the negotiations on card fees. It is just like how restaurant owners give discounts to their regular customers.”

Director Hwang Myeong-hee of the public relations department of the Credit Finance Association said, “It goes against economic logic that the small-and-medium sized companies are asking for lower card fees because of their current economic difficulties. If any third party such as the Financial Supervisory Service comes in and sets a fair standard for card fees, the card industry will try to come up with reasonable card fees based on that standard.”

In this situation, it seems that the friction between small-and-medium sized businesses and the card companies over card fees will only escalate in the future.