Shadow of a Digital Store
상태바
Shadow of a Digital Store
  • Kim Hyeonseo, Shin Jung Soomin
  • 승인 2024.10.02 08:00
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On August 18, sellers and consumers, who suffered economic damage due to the unfettered settlement of Timon and WeMakePrice, held a Black Umbrella rally in front of the Government Complex Seoul where the Financial Services Commission is located. They announced the launch of the Black Umbrella Emergency Management Committee on this day and demanded the government come up with effective relief measures and enact special laws. With the start of the Timon-WeMakePrice crisis, anxiety appears to be adding to the e-commerce market.

 

Online shopping has become routine

E-commerce refers to online transactions through the Internet. Due to the popularization of the Internet and the development of various mobile applications, consumers easily shop anytime, anywhere. According to "December and Annual Online Shopping Trends in 2023" released by Statistics Korea on February 1, online shopping spending exceeded 227 trillion won in 2022, the highest ever. In online shopping, convenience was provided to consumers through services such as price comparison and early morning delivery. changes in consumer behavior that value convenience have also led to the expansion of online shopping and in turn the growth of the e-commerce market. Besides, the e-commerce is introducing various technologies for the online shopping market, which is growing on a large scale. In this regard, Naver, a portal site, provides services such as similar product recommendations and bundled purchase recommendations to consumers while applying AI-based technologies widely to e-commerce. These are aimed at expanding the online shopping market, which in turn builds a cycle as each lead to the other. In the future, it seems a wider range of services will be introduced by industries aiming for growth in the online shopping and e-commerce markets.
E-commerce, which is growing rapidly, shows significant differences from offline shopping in the payment process. Unlike offline shopping where money is exchanged directly between the consumer and the seller, e-commerce requires a payment gateway (PG) company such as Toss Payments and NHN KCP Corp. When a consumer orders something through an online shopping mall such as Coupang or Gmarket, the online shopping mall requests payment from the PG company, which in turn requests payment approval from the consumer s card company. After getting approval, the PG company transfers the payment after deducting its commission to the online shopping mall, and the shopping mall pays the seller, creating a complex structure. However, as the scale of the e-commerce market expands, damages related to structure within e-commerce are also increasing. Since online shopping malls WeMakePrice and Timon announced in July that they could not pay the price to sellers due to accumulated deficits, the issue of non-payment of settlement has been spreading. This non-payment situation has caused financial damage to many sellers who sell products online. It has also caused an economic burden not only for those who only run online shopping malls, but also for offline store operators who earn additional income through online sales. Kim Dae-hyung, who runs a snack shop in Jungnang Dongbu Market in Seoul, said, "I used to sell not only my own products but also other merchants' products for those who were not familiar with online sales. But because of the Timon-WeMakePrice incident, I have to compensate them for their damages with my own money."1) This means that the non-payment caused by the structural problems of the e-commerce market called Timon-WeMakePrice has also affected offline store operators. As consumption through the e-commerce market is becoming more widespread, potential problems appear to be gradually becoming apparent.
 

PHOTO FROM STATISTICS KOREA
PHOTO FROM HAPPY MONEY

 

The wavelength of a few clicks

While the e-commerce market has grown, problems related to laws and regulations are occurring. According to the Large-Scale Distribution Business Act, large offline retailers such as E-Mart regulate the payment settlement cycle every 40 to 60 days, but e-commerce companies are not regulated. The advantage of increasing the payment settlement cycle is increased cash liquidity. This is because funds can be used in other ways, such as being used for other business areas of the parent company. But if the payment is not paid to the seller normally, businesses that have not received settlement build up, resulting in market instability. Lee Jong-woo, a professor of business administration at Ajou University, said, "Even now, it should be included in the current large-scale distribution business law to regulate the payment deadline for platform consignment sellers."2) This means that laws regulating the e-commerce industry were insufficient, and it shows that companies abused it, causing problems in e-commerce, like the Timon-WeMakePrice crisis. In addition, there is an enforcement decree that platform companies must keep the purchase price in a third-party bank, but some companies are not complying with it, such as Timon and WeMakePrice. In accordance with the E-Commerce Consumer Protection Act and the Enforcement Decree, the Korea Fair Trade Commission (KFTC) implemented a payment deposit system in April 2006. The shopping mall does not directly receive the payment, but rather entrusts it to a third financial institution, and settles with the seller when the customer confirms the purchase. Problems caused by poor regulation of e-commerce companies appear to be starting to occur, causing various repercussions.
Gift certificates traded in the e-commerce market are a legal blind spot, too. The damage to the "Sangtake" people, who buy a gift card discounted with a card, accumulate card points, and resell the purchased gift card, occurs due to lack of management. Since the abolition of the Gift Certificate Act in 1999, anyone can issue gift certificates without restrictions, and the issuance and distribution of gift certificates was in the blind spot of regulation and monitoring. Thus, To address the deteriorating financial situation, WeMakePrice and Timon recently attracted money by selling prepaid rechargeable "Timon Cash" and various gift certificates at discounted prices after pre-ordering, resulting in a cash shortage and a massive refund suspension. An official from a gift certificate company said, "If the amount of Happy Money unofficially sold to the gift certificate industry is added, the undisclosed amount of damage could be even greater."3) It is interpreted that institutional arrangements are needed to prevent companies from issuing gift certificates without any regulation to secure short-term funds. This is because when Timon and WeMakePrice fell into a state of insolvency and were unable to settle the payment, affiliates blocked the use of gift certificates, making them useless. It seems that the lack of supervision of e-commerce platform companies has led to a series of collapse of large companies, demanding a solution from the government to resolve the situation.
 

PHOTO FROM NEWSIS
Kim Beom-seok, Vice Minister of Ministry of Economy and Finance, discussing the revision of the Electronic Commerce Act

 

Creating a better store

Various countermeasures are being proposed to solve the problems occurring in the e-commerce market. In order to prevent the problem of non-payment of settlement due to the increase in the scale of e-commerce and the damage to platform users caused by this, the government passed a revision to the "Act on Consumer Protection in E-commerce, etc," which went into effect from the end of August. Under the original law, e-commerce companies manage the entire price they receive from the PG company and then settle it with the seller, but a third party retains a portion of the payment according to the revision. As a result, the PG company, which is a third party, will be charged with the task of safeguarding the payment, thereby preventing the online shopping mall from using it for other purposes. In addition, the long settlement period of over 60 days is regulated by law to be shortened to 40 days or less. This shortened settlement cycle allows sellers to have a stable flow of funds and builds trust between PG companies and sellers. However, some point out that this formal system, which covers all e-commerce markets, hinders industrial growth by making it difficult to provide various settlement methods to each online platform. Jeong Yeon-seung, a professor of business administration at Dankook University, said, "If the settlement deadline is shortened uniformly, small-scale companies will easily face financial pressure."4) In other words, the shortened settlement period is what makes the entry barrier for new online platforms higher, so a unified amendment that does not take into account the characteristics of the platform could have a negative impact on other companies. Although there are attempts to secure the stability of the e-commerce market through the revision, it seems that there is also a limitation in that it obstructs the market economy.
The government is also providing follow-up support to restore damages suffered by e-commerce users. On August 7, the government requested cooperation from gift certificate issuers so that affected consumers could use gift certificates normally. The gift certificate issuers agreed to accept government's refund requests for gift certificates sold at the government's request, and agreed to cooperate in redressing consumer damages by adhering to contracts set up for gift certificates. To minimize business damage, the e-commerce store damage recovery fund supported by the Seoul City Hall is for enterprises that have suffered damage due to delayed payments on e-commerce platforms, and provides support of up to 50 million won per enterprise. However, there are problems with these measures, which are hindering actual damage relief. While the gift certificate companies agreed to support the government in providing relief to the victims, the travel agencies and PG companies claimed that the other party is responsible for the refund and that they are not primarily responsible, so refunds are on hold. Kim Hyun-jung, a member of the National Policy Committee, said, "We have confirmed that refunds are not being processed through any credit card company, PG company, or travel agency. This problem occurred because the government failed to reach a conclusion on who should be in charge of the refund and failed to mediate this issue."5) This can be interpreted as a situation where responsibility is being passed to another, and the government has not implemented active regulations, delaying the recovery of consumer damages. Efforts to remedy the damages suffered by consumers and sellers are ongoing, but the subject of a refund has not been specified. Various measures are emerging to solve problems within the large-scale e-commerce market, but it seems that additional solutions are needed for the resulting side effects.
 

PHOTO FROM SBS

 

For the prosperity of both businesses and consumers

The online e-commerce market has grown due to the convenience of transactions and the development of the Internet. Accordingly, the impact of instability in the e-commerce market is also growing due to a blind spot in the law. After Timon and WeMakePrice revealed the delay in settlement due to a large deficit, several problems came to the surface. Measures are being proposed to solve the problem, but problems such as hindering industrial growth and compromise are needed. To solve these problems and form an e-commerce market where consumers and companies coexist, it seems necessary to regulate the field.

 

1) Bang Jun-won, "The Timon-WeMakePrice, the missing 1 trillion won", KBS, August 25, 2024

2) Kim Han-na, "Deferred payment practices revealed as 'Timpe'..."E-commerce is a blind spot"", kukinews, August 1, 2024

3) Jeong Hee-won, "Happy Money Gift Certificates Pieces of Tissue Application for Group Adjustment of 130,000 People, but...", The Korea Economic Daily, August 29, 2024

4) Park Eun-seo, "The Timon-WeMakePrice 'Butterfly Effect' Alerts Incident… Will everything be resolved if a law to shorten the settlement period is created?", The Seoul Shinmun, August 23, 2024

5) Do Hye-won, "Democratic Government Covers Up and Downplays the Timon-WeMakePrice incident… Will Meet with the Financial Supervisory Service and Fair Trade Commission", Seoul Economic Daily, August 20, 2024

 

Kim Hyeonseo / Reporter
smt.kkhs@gmail.com
Shin Jung Soomin / Reporter
smt.sjsm@gmail.com


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