“Refer to international organizations to prevent recurrence of Timon and WeMakePrice incident” (Q&A) :: Sympathetic Media Newsis ::

Financial Supervisory Service Briefing on Timon and WeMakePrice Settlement Delays

“If one PG company becomes insolvent, it will have a chain reaction”

“Payment and settlement system needs stable regulation…Discussion of countermeasures”

(Seoul = Newsis) Reporter Choi Hong = The financial authorities have decided to prepare a system improvement plan with related ministries in relation to the Timon and WeMakePrice unsettled situation. As similar problems are emerging worldwide, they plan to devise a plan to strengthen the domestic electronic payment and settlement regulation system by referring to cases of international organizations.

Lee Se-hoon, Senior Vice Chairman of the Financial Supervisory Service, made the announcement at a briefing held at the Financial Supervisory Service headquarters in Yeouido, Seoul on the 25th regarding the ‘Tmon and WeMakePrice settlement delay incident.’

The senior vice president said, “It is necessary to systematically regulate payment settlement risk stability,” adding, “Since payments are made through multiple payment gateway (PG) companies, if payment insolvency occurs at even one of them, a chain reaction of risks can occur.”

He explained, “This type of discussion is actively taking place in international organizations, so we are trying to benchmark it,” and “Since there is currently no legal regulatory system for protecting the payment of merchants, we need to discuss it further.”

Below is a summary of the Q&A with the Senior Vice President.

-What specifically needs to be improved in the system in relation to this unsettled situation?

“The entire ministry should discuss measures to improve the system. In terms of the financial sector, it is necessary to systematically regulate payment risk stability. In e-commerce, payments are not made directly between the parties (seller and buyer, etc.) but are processed through multiple PG companies such as first and second tier companies. Therefore, if even one company becomes insolvent, a chain of problems will occur. Currently, international organizations are actively discussing this issue, and we plan to benchmark it. Regarding prepaid charging funds, we are establishing a protection system through revisions to the Electronic Financial Transactions Act. However, there is currently no legal regulation system for the issue of payment protection for merchants, which has become an issue in the current Tmon-WeMakePrice incident. We need to discuss additionally whether a separate protection device is necessary for this as well.”

– As of May sales (July 11), WeMakePrice’s 36.9 billion won payment has not been settled. How much has not been settled since then?

“We understand that unsettled amounts are continuing to accumulate. However, the numbers identified by the financial authorities are the numbers reported by the companies, so they have not been verified. The amount of unsettled amounts reported by the companies to the authorities is not much different from the approximately 160-170 billion won recently reported in the media. The on-site investigation team will have to confirm the exact amount.”

-What kind of cooperation are Tmon, WeMakePrice, and card companies doing to resolve consumer inconvenience?

“We are currently discussing with the travel industry, centered around the Ministry of Culture, Sports and Tourism. In reality, small and medium-sized travel agencies that sell travel products are having difficulty managing their operations if sales proceeds are not settled. The response plan will be specific depending on the circumstances of the travel agency. In addition, we are requesting that card companies and PG companies that are in charge of intermediary payments respond first to consumer payment cancellations and refunds, and separately bill Timon and WeMakePrice for the resulting fund settlement.”

(Seoul = Newsis) Reporter Kim Geun-soo = As the damage from settlement delays at Qoo10 affiliates such as Timon and WeMakePrice spreads, consumers are waiting in front of Timon’s headquarters in Gangnam-gu, Seoul on the afternoon of the 25th after receiving a number. 2024.07.25. (email protected)

-Where did Timon and WeMakePrice spend the money that should have been paid to the merchants? Was it used for the merger and acquisition process of the parent company, such as Quten?

“Since financial authorities are focusing on the stability of payment settlement in relation to the Tmon and WeMakePrice unsettled situation, their influence cannot but be limited. Therefore, it is difficult to confirm where Tmon and WeMakePrice used the sales proceeds. What efforts e-commerce companies made to pay the sales proceeds must be revealed through on-site inspections.”

-It has been a long time since Timon and WeMakePrice were said to be in poor financial condition, but there is criticism that the Financial Supervisory Service failed to respond properly.

“What the financial authorities are checking is not the e-commerce companies, but the appropriateness of the PG companies’ payment agency business. Since supervision is limited, such as whether the payment infrastructure is being operated appropriately, it is difficult to grasp the overall picture.”

– You said that the supervisory authority is limited, but if you look at the regulations on supervision of the financial industry, the capital ratio, etc. are specifically stated.

“The Financial Supervisory Service has been regularly inspecting Timon and WeMakePrice. It is true that they have not been complying with the relevant regulations for a considerable period of time. However, due to the nature of e-commerce, there are many startups that are just starting out, and since a lot of investment is required in the early stages, it is also necessary to consider that they are unable to accumulate sufficient capital. We cannot cancel the registration of money transfer businesses without considering this.”

-How specifically has the Financial Supervisory Service supervised the unsettled balances of Timon and WeMakePrice?

(Kim Byeong-chil, Deputy Governor of the Financial Supervisory Service) “Since 2022, Timon and WeMakePrice have not met the capital and liquidity regulations that must be observed under the Electronic Financial Transactions Act. Accordingly, the Financial Supervisory Service has been managing Timon and WeMakePrice by signing a management improvement MOU in accordance with the regulations. This is because there is no basis for directly issuing a management improvement ‘order’ under the Electronic Financial Transactions Act regulations. Nevertheless, because the e-commerce business was so competitive, Timon and WeMakePrice were unable to properly comply with the management improvement MOU.”

-Currently, the government joint inspection team is inspecting Timon and WeMakePrice. How many people are from each company? What are they specifically looking at?

“Five Fair Trade Commission officials and seven Financial Supervisory Service officials are going to each company. First, we are accurately determining how much unsettled amounts there are and the extent of consumer inconvenience. In particular, the government is urging Timon and WeMakePrice to make responsible efforts to quickly resolve the situation. We are also looking into whether there are other potential violations of the law related to the businesses they are operating.”

-Are there any signs of unsettled transactions being discovered in other e-commerce companies besides Timon and WeMakePrice?

“Other companies are settling properly on a regular basis, so there are no problems. I think Timon and WeMakePrice are special cases, unlike other companies, because they expanded their business areas too aggressively and there is a possibility that they used money in the process.”

-How are you responding to the situation where some refunds are difficult, such as when card payments cannot be cancelled?

“We are asking for cooperation from the card industry and the travel industry. I understand that large travel agencies with the means have supported refunds, but small and medium-sized agencies face practical difficulties in responding 100% despite requests for cooperation. Nevertheless, the authorities are trying to minimize consumer damage. We plan to ask for cooperation through dialogue with the relevant industries.”

– The revised Electronic Financial Transactions Act, which will be implemented on September 15, requires prepaid electronic payment businesses to store their recharges externally, but there are criticisms that it is difficult to apply this to consignment sales of gift certificates, such as Timon.

“The Electronic Financial Transactions Act imposes obligations on the entity that directly issued the gift certificate. There is a legal issue regarding the extent to which the issuer of the gift certificate sold on Timon is responsible for fulfilling the contract. The issue in this case is the safe custody of the issuance fee, not the issue of the entity that is ultimately responsible for fulfilling the management contract. There is some question as to whether institutional improvement is necessary in this regard.”

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