A Zero-fee Payment Service
The Seoul Metropolitan Government is set to introduce a convenience payment service to lower settlement fees to zero for small business owners. The service, dubbed “Zero Pay,” is one of the election pledges that Seoul Mayor Park Won-soon made on the campaign trail in June election.
Zero Pay is a direct transaction system where money is transferred from a consumer’s account to a seller’s account when the consumer scans the seller’s QR code with their smartphone when they purchase an item. Consumers can use the convenience payment apps (application programs) they have been using, such as Kakao Pay, Naver Pay, and Payco.
The new system involves a payment platform company that requests money transfer from a commercial bank based on the QR code transmitted by a consumer. The bank immediately transfers the money from the consumer’s account to the seller’s account. In this process, the payment platform company does not receive the offline settlement fee, and the commercial bank does not receive the transfer fee from the platform company.
Small businesses that are eligible for this zero-fee settlement service are those with less than 10 regular employees. The upper limit of the specific number of employees to be recognized as a small business owner varies according to the type of business.
In the existing card payment system, credit card member stores have to pay a fee in the process of getting a payment approval. At the moment, they go through three stages -- a card company, a VAN (payment agency), and a payment gate (PG). If the credit card fee is 100 won, 50 won goes to the credit card company, 30 won to the VAN, which connects the credit card company and member stores, and 20 won to the PG, which offers a settlement service. According to a survey conducted by the Seoul city government in April, convenience stores had an average of 679 million won of annual sales, 29 million won of operating profit, and 9 million won of credit card fee. Card fees accounted for 30% of operating profit.
The joint QR code to be introduced for Zero Pay will allow the participating private payment platform companies to share the member stores. Convenience stores need to have only one QR code without having to have different QR codes for different payment platform operators such as Kakao Pay and Naver Pay.
The joint QR code is designed to allow new private platform operators and banks to participate at any time. It also allows other municipalities to participate as it can accommodate their databases of member stores. Promoters of Zero Pay plans to make it available anywhere in the country without redundant investment.
The key to the introduction of Zero Pay is attracting consumers. Incentives are needed to attract consumers to Zero Pay from credit cards. The government decided to apply a higher income deduction rate (40%) than the rate applied to cash receipts (30%) or credit cards (15%).
The central government will also throw its weight behind Zero Pay. It plans to integrate the convenience payment systems for small businesses that have been pushed separately by local governments into Zero Pay. Hong Jong-hak, minister of SMEs and Start-ups, said, "Other local governments will start the Zero Pay service at the same time as Seoul City."
Meanwhile, the push for Zero Pay is unnerving for credit card companies. If introduced across the nation, the new payment system will seriously undermine the foundation of the credit card business.