{"id":2206576,"date":"2024-09-23T20:02:31","date_gmt":"2024-09-23T11:02:31","guid":{"rendered":"https:\/\/koreapro.org\/?p=2206576"},"modified":"2024-09-23T20:04:09","modified_gmt":"2024-09-23T11:04:09","slug":"south-korea-looks-to-overhaul-e-commerce-with-strict-payment-regulations","status":"publish","type":"post","link":"https:\/\/koreapro.org\/2024\/09\/south-korea-looks-to-overhaul-e-commerce-with-strict-payment-regulations\/","title":{"rendered":"South Korea looks to overhaul e-commerce with strict payment regulations"},"content":{"rendered":"

South Korea is moving to tighten oversight in the wake of a liquidity crisis that rocked e-commerce platforms <\/span>TMON and Wemakeprice<\/span><\/a>, leaving vendors unpaid and damaging trust in online marketplaces.<\/span><\/p>\n

At a <\/span>public hearing<\/span><\/a> on Monday, the Financial Services Commission (FSC) and Fair Trade Commission outlined the government\u2019s move to amend the <\/span>Electronic Financial Transactions Act<\/span><\/a> and the <\/span>Fair Transactions in Large Retail Business Act<\/span><\/a>.<\/span><\/p>\n

The FSC emphasized that these changes aim to prevent a repeat of the crisis and improve the security of online payment systems.<\/span><\/p>\n

While these amendments aim to create a safer, more transparent environment for e-commerce, they also bring significant regulatory challenges for <\/span>payment gateway<\/span><\/a> (PG) companies \u2014 businesses that securely process and authorize online payments between customers and merchants \u2014 as well as e-commerce platforms and vendors.<\/span><\/p>\n

TMON and Wemakeprice\u2019s liquidity crisis exposed a severe vulnerability in how funds were handled, especially for small vendors. Unsettled payments from these platforms left vendors not only in South Korea but also <\/span>China<\/span><\/a> struggling. At its core, the issue was the mismanagement of settlement funds \u2014 consumer payments that never made it to the vendors who relied on them.<\/span><\/p>\n

The government responded by introducing amendments to the Electronic Financial Transactions Act and Fair Transactions in Large Retail Business Act. One of the most significant changes is the requirement that PG companies must now manage 100% of unsettled funds separately from their own operational funds, ensuring they are used exclusively to pay vendors.<\/span><\/p>\n

\"\"

Kim Beom-seok (left), South Korea\u2019s First Vice Minister of Economy and Finance, presides over a meeting to discuss a liquidity support plan to aid SMEs impacted by Wemakeprice and TMON\u2019s liquidity crisis, July 29, 2024 | Image: ROK Ministry of Economy and Finance<\/a><\/em><\/p><\/div>\n

NEW REGULATIONS<\/b><\/p>\n

The immediate impact of these regulations is an increase in compliance costs for PG companies. While mandating PG companies to manage 100% of settlement funds separately may ensure that vendors are paid promptly, this creates operational challenges.<\/span><\/p>\n

Larger PG companies like <\/span>KG Inicis<\/span><\/a> and <\/span>Hecto Financial<\/span><\/a>, which have more financial capital at their disposal, will likely adapt more easily. However, smaller PG firms could find these regulations burdensome.<\/span><\/p>\n

Smaller PG companies that have traditionally relied on using settlement funds for short-term liquidity will likely face cash flow constraints under the new rules. This may lead to market consolidation, where only well-capitalized PG providers can continue to operate profitably.<\/span><\/p>\n

As these smaller players are squeezed out, competition in the sector could diminish, potentially leading to higher fees for e-commerce platforms that rely on these services.<\/span><\/p>\n

The new regulations could also stifle innovation in the e-commerce space. The amendments to the Fair Transactions in Large Retail Business Act require PG companies to make prompt payments to vendors. This will likely raise the cost of doing business for smaller platforms or startups.<\/span><\/p>\n

New entrants to the market may also find the financial burden of compliance too high, reducing the likelihood of innovative platforms emerging in the near future, which may limit the diversity of e-commerce players in the market.<\/span><\/p>\n

This amendment will likely have other unintended consequences, too. For instance, smaller PG companies, which will bear the brunt of increased operational costs, may pass the costs down the line.<\/span><\/p>\n

Smaller vendors, who rely heavily on e-commerce platforms for their sales, may also face higher fees or reduced access to services as platforms adjust to the new regulatory environment.<\/span><\/p>\n

\"\"

An illustration of a person shopping online | Image: Korea Pro<\/em><\/p><\/div>\n

NEW OPPORTUNITIES<\/b><\/p>\n

Despite the increased operational costs and challenges the new amendments may bring, they may help to restore trust in the e-commerce sector.<\/span><\/p>\n

TMON and Wemakeprice\u2019s liquidity crisis severely damaged the reputation of South Korea\u2019s online marketplace, particularly for vendors that were left unpaid. Restoration of trust is critical for the battered sector, as it will attract more vendors to online platforms and encourage consumers to continue using digital payment systems.<\/span><\/p>\n

Platforms that comply with these regulations can position themselves as safe and reliable options for both vendors and consumers, helping them attract more users in a competitive market.<\/span><\/p>\n

On the other hand, the new regulations also present larger PG companies an opportunity to consolidate their market leadership. As smaller players exit the market due to increased compliance costs, these larger firms will likely capture more market share.<\/span><\/p>\n

The government\u2019s emphasis on protecting consumers and vendors will also likely lead to more robust consumer protections, which could boost consumer confidence and spending in the e-commerce sector.<\/span><\/p>\n

LOOKING AHEAD<\/b><\/p>\n

In the short term, businesses in the e-commerce and PG sectors will face increased operational costs as they adjust to the new regulations. Smaller companies, in particular, will struggle with the financial demands of compliance, leading to market exits or acquisitions by larger players.<\/span><\/p>\n

Consumers and vendors may experience temporary disruptions as platforms implement the necessary changes to meet regulatory standards.<\/span><\/p>\n

Over time, however, the market may stabilize as the new rules create a more secure and transparent digital payment environment. However, larger PG companies and e-commerce platforms that can comply with the regulations will likely benefit more, creating a more consolidated market.<\/span><\/p>\n

The government\u2019s regulatory push, while challenging for some, sets the stage for a more reliable and resilient e-commerce ecosystem. Businesses that adapt to the changes will be well-positioned for future growth in a safer and more trusted marketplace.<\/span><\/p>\n

Edited by Alannah Hill<\/span><\/i><\/p>\n

Business & Economy<\/span><\/a>Technology & Cyber<\/span><\/a><\/div>","protected":false},"excerpt":{"rendered":"

South Korea is moving to tighten oversight in the wake of a liquidity crisis that rocked e-commerce platforms TMON and Wemakeprice, leaving vendors unpaid and damaging trust in online marketplaces. 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