(EDITORIAL from Korea Herald on July 29)

E-commerce problems
: Fears of influence spreading beyond Tmon and WeMakePrice to e-commerce sector

The South Korean e-commerce industry was thrown into chaos last week when two prominent platforms linked to Singaporean group Qoo10 failed to make payments to sellers, reportedly due to cash-flow problems, and concerns are growing about the impact on the industry as a whole.

As the crisis deepened over the deferred payments, retailers and travel agents suspended services or terminated contracts with Tmon and WeMakePrice. Thousands of customers rushed to both companies’ offices to demand refunds.

Tmon and WeMakePrice rank 4th and 5th respectively in the Korean e-commerce market. The combined number of customers who have signed up for the two companies’ e-commerce services is over 8.6 million. And most of the 60,000 merchants selling their products through Qoo10 affiliates are small merchants and self-employed individuals, a group that is susceptible to sudden payment defaults.

On Thursday, Korean financial and antitrust authorities launched joint on-site investigations into Tmon and WeMakePrice to determine what led to the missed payments. The Financial Supervisory Service said the value of the late payments was estimated at 170 billion won ($122.7 million). On Friday, the presidential office said it was “closely monitoring” the incident that caused the late payments, and related ministries were working on measures.

The e-commerce turmoil began to attract media attention on July 7, when 500 WeMakePrice merchants raised issues of delayed payments. This situation led to payment delays at Tmon, and merchants at both companies became more concerned as Qoo10 was allegedly in a cash crunch due to aggressive mergers.

Qoo10 was launched by Koo Young-bae in 2010. He also founded GMarket, a Korean e-commerce platform that was sold to US-based eBay in 2009. Qoo10 has expanded its business by acquiring Tmon in 2022 and Interpark Commerce and WeMakePrice last year.

Qoo10, which also has operations in Japan, China, Hong Kong, Malaysia and Indonesia, further expanded its business portfolio this year, acquiring North American e-commerce platform Wish for $173 million in February and AK Mall, a mid-sized Korean department store chain, in March.

On Sunday, Qoo10 reportedly plans to raise $50 million in August to resolve payment delays by two local platforms. However, a senior financial authority official said the proposed move would not be enough to resolve the issues.

It is unclear whether the Qoo10 merger directly caused the financial problems that affected Tmon and WeMakePrice. Given the rumors about other factors, the authorities should investigate the matter and identify related problems in detail.

But regardless of the cause, financial and trade regulators have been criticized for failing to spot potential problems in advance and take proactive measures.

The Fair Trade Commission and the Financial Supervisory Service belatedly dispatched officials to the Seoul offices of Tmon and WeMakePrice to check for violations of the E-Commerce Transaction Act, terms of contracts with sellers and customers, and other regulations.

It’s not the first time the country’s e-commerce sector has been mired in payment troubles. In 2021, popular online discount app Mergepoint abruptly halted its Mergemoney service, surprising customers and causing service disruptions and damage.

However, the government has failed to take adequate steps to tighten e-commerce regulations and introduce safeguards for customers exposed to potential risks associated with online purchases.

For example, the e-commerce revision bill, which requires companies to comply with refund clauses, has been stuck in delays. It is now set to be implemented from September.

To solve the fundamental problem of online payments, the government must require e-commerce companies to opt for fast payments or rely on escrow services through financial companies to ensure reliability. The FTC and appropriate regulators must review e-commerce payment procedures and strengthen regulations to protect both suppliers and customers.
(END)