Payment delays at online shopping platforms TMON and WeMakePrice are escalating into a potential full-blown crisis. The two companies, the fourth and fifth largest e-commerce platforms in Korea with over 8.6 million monthly users combined, have halted credit card payments and refunds since July 23. Banks have also suspended loan services that provided advance payments to vendors dealing with the two companies.
TMON and WeMakePrice have failed to settle payments to sellers this month due to liquidity issues. Industry insiders believe the two platforms have accumulated massive deficits and are in serious financial trouble. Sellers that sold goods through these platforms have not received payments for more than a month, with estimated damages exceeding 100 billion won.
Ongoing payment delays have raised concerns that the domestic ‘e-commerce bubble’ may be on the verge of bursting. Last year, the domestic e-commerce market reached 227 trillion won ($164 billion), growing tenfold in 13 years. E-commerce’s rapid growth has put significant pressure on offline retailers. It has also spurred intense competition online, which is now starting to collapse from the lower-tier companies.
“The Korea Fair Trade Commission (KFTC) and financial authorities are quickly assessing the situation to minimize damage to consumers and sellers,” said an official from the presidential office. “The KFTC is actively considering ways to utilize the damage relief and dispute settlement functions of the Korea Consumer Agency,” said KFTC Chairman Han Ki-jung. Law firms have been preparing class action lawsuits against the two online shopping platforms in anticipation of potential bankruptcies.
Most e-commerce platforms in Korea, including TMON and WeMakePrice, allow sellers to list and sell their products on the platforms. This business model requires minimal initial investment, as the companies only need to maintain a marketplace and earn commissions from sellers. The platforms didn’t mind incurring losses as the e-commerce market rapidly grew over the past ten years, and they continued their business with an eye on the future.
However, fierce competition, both domestically and from Chinese e-commerce giants like AliExpress and Temu, has led TMON and WeMakePrice to rely on aggressive marketing strategies, such as excessively giving out discount coupons.
TMON and WeMakePrice have essentially operated by ‘robbing Peter to pay Paul,’ or paying sellers one to two months after the consumer’s payment. For instance, even if the platforms incurred a loss of 10 billion won in January, they would only need to earn 10.1 billion won in February to settle the 10 billion won. This model relies on constant growth to cover previous losses, ultimately hitting its limit this month. As the platforms lose credibility, more sellers suspend sales, and consumers stop buying, leading to a vicious cycle of decreasing sales and further financial instability.
A well-capitalized company might weather a temporary crisis, but TMON and WeMakePrice lack capital. Both companies are subsidiaries of the Singapore-based e-commerce platform Qoo10. Qoo10 founder Koo Young-bae acquired a series of domestic and international e-commerce companies, including TMON, WeMakePrice, Interpark Commerce, AK Mall and U.S.-based Wish. An industry insider suggested that Koo’s goal was to acquire numerous struggling companies and take them public.
TMON and WeMakePrice explained that the payment settlement delays are temporary. “We will do our best to resolve settlement delays and restore the trust of sellers and customers,” they said in a statement.
