Financial authorities have issued a no-action letter stating that Payment Gateway (PG) regulations will not apply to the internal settlement operations of retailers such as department stores and convenience stores. The Electronic Financial Transactions Act (EFTA), revised in September last year, included in the PG business the work of retailers internally settling funds received from franchisees or in-store vendors. After a one-year grace period, the amendment takes effect on the 15th.
Once the amendment takes effect, retailers would have to register as PG operators by the 14th of this month, but financial authorities have taken steps to exempt them from this.
According to the financial sector on the 11th, financial authorities recently issued such no-action letters to the retail industry, including convenience stores, department stores, franchises, and Super Supermarkets (SSM). The authorities said, "Market confidence has formed that the EFTA will not apply to companies that conduct internal settlements for their own business," and noted, "It is necessary to issue a no-action letter to resolve legal instability until the EFTA is revised and implemented."
This measure comes as the EFTA amendment bill introduced in Oct. last year remains pending in the National Assembly. The EFTA, which passed the National Assembly in September last year, effectively defines all electronic transaction settlement operations as PG business. Internal settlements by retailers of funds received from franchisees and in-store vendors also fall under PG business. For example, when a simple payment provider like Naver Pay pays the settlement amount to Department Store A, Department Store A then settles the money and transfers it to the in-store vendor. Under the EFTA, this operation also constitutes PG business, so Department Store A must register as a PG operator with the financial authorities.
At the time, the retail industry pushed back, calling it excessive regulation, and the government ultimately granted a one-year grace period before the amendment's implementation. Afterward, the National Assembly and financial authorities introduced a new EFTA amendment in Oct. last year that reflected the retail industry's complaints. The core of the new amendment is to assign PG companies the duty to manage settlement funds and to strengthen supervisory regulations and capital requirements to prevent a recurrence of the T-MEP (TMON and WeMakePrice) incident. It also includes excluding retailers such as department stores, franchises, and convenience stores from the application of PG company regulations. Specifically, it states that cases in which "the receipt of consideration and settlement agency are tied to other operations such as sales intermediation" will not be deemed PG business.
However, as the amendment failed to clear the National Assembly threshold, retailers faced a situation in which they had to register as PG operators by the 14th. In response, financial authorities issued no-action letters to temporarily exempt retailers from the PG registration requirement. Considering the legislative process, the authorities set the validity of the no-action letters through the end of March next year.
With this measure, the retail industry has resolved the PG registration issue. If they register as PG operators, they must come under the supervision of financial regulators, which is a burden from the industry's perspective. In addition, for convenience stores or franchises, if the headquarters does not register as a PG operator, they cannot offer simple payments. To avoid this, if they use an external service provider, they must pay a fee of 2%–3% of the funds.