Point payment legal issues and revised Electronic Financial Transactions Act legal review

Law firm Veat received a request from a data-driven MedTech company A (hereinafter referred to as the "Client") to review whether the cash used in the Client's online market qualifies as a pre-paid electronic payment method under the 「Electronic Financial Transactions Act」.

Law firm Veat’s e-commerce lawyers analyzed the legal status of the cash used in the Client’s online market from various perspectives. In particular, we conducted a detailed review of the obligations of issuers registered as pre-paid electronic payment methods under the revised Electronic Financial Transactions Act, as well as the limits that do not apply when exemptions are granted.

First, we reviewed whether the cash used to purchase products sold by the Client falls under the case “used only by the issuer”.

Also, we conducted a legal review regarding whether the services operated by each representative with different subsidiary services registered under the Client’s service structure could be recognized as separate merchants. At this time, we analyzed whether the Client’s situation met the requirements of a merchant under the Electronic Financial Transactions Act, and advised that the obligation to register as a pre-paid business could vary depending on the method of service provision between merchants.

Thirdly, we reviewed how the limits are applied to the issuance of electronic payment methods when an exemption from pre-paid business registration is granted. We reviewed the legal requirements regarding which specific regulations apply to pre-paid electronic payment methods that are exempt from registration under the Electronic Financial Transactions Act, and whether the maximum issuance limit would also be exempt accordingly.

Point payments are a payment method used in many online markets, allowing consumers to purchase various products and services through these systems.

Law firm Veat comprehensively reviewed whether the Client’s point system could be considered a pre-paid electronic payment method under the Electronic Financial Transactions Act, and whether to comply with the applicable regulations accordingly, and provided guidance.

Pre-paid electronic payment methods: Why proactive legal review is necessary

On September 15, 2024, the revised Electronic Financial Transactions Act, which significantly strengthens regulations on pre-paid electronic payment methods, came into effect, which is expected to have a significant impact on electronic commerce and fintech companies.

Firstly, pre-paid businesses are now required to separately manage at least 50% of the pre-paid recharge funds and safely store them through designated institutions such as banks - a new obligation to protect pre-paid recharge funds.

Also, the registration criteria for pre-paid businesses have been strengthened, allowing exemptions only when the outstanding balance is less than 300 million won and the annual issuance amount is less than 5 billion won. A registration obligation is imposed when used by multiple merchants. Furthermore, the refund obligation has been expanded, requiring that the full balance be refunded to consumers if the terms of use of a pre-paid electronic payment method are changed or merchants are reduced.

The revised law requires the financial soundness of pre-paid businesses, and newly establishes rules of conduct allowing only pre-paid businesses that meet certain requirements to provide benefits such as discount issuance and credit point redemption.

With the revised Electronic Financial Transactions Act coming into effect on September 15, 2024, companies managing pre-paid recharge funds or issuing pre-paid electronic payment methods need to expedite preparations for pre-paid business registration. In particular, registration requirements have been strengthened, so companies that were not previously registered as pre-paid businesses need to review new legal requirements and finalize registration procedures.

A clear understanding of compliance requirements under the Electronic Financial Transactions Act and the establishment of a lawful business model based on this is an important key point for the success of a company. Law firm Veat is providing legal advice to companies operating pre-paid electronic payment methods, such as point payment systems, to keep pace with these changes, and to help companies comply with the revised law regarding pre-paid business registration and legal requirements.

Law firm Veat has extensive experience collaborating with various companies operating pre-paid electronic payment methods, such as point payment systems, and is minimizing legal risks and supporting successful business operations.

Companies can use the assistance of Law firm Veat’s electronic financial transactions and IT legal experts to prepare for new legal requirements and smoothly proceed with pre-paid business registration, so if you need assistance with pre-paid electronic payment methods or matters related to the 「Electronic Financial Transactions Act」, please contact Law firm Veat.

Thank you.

Law firm Veat