The recent issues involving TMON and WeMakePrice have revealed significant vulnerabilities in the gift card market. In an effort to secure liquidity, both companies offered steep discounts on gift cards, even at a loss. Simultaneously, payment platforms increased recharge limits, effectively encouraging what is known as “gift card investment.” This situation has been exacerbated by the South Korean government’s neglect of the market since the repeal of the Merchandise Coupons Act in 1999, leading to an expansion of the underground economy. The estimated annual value of discounted gift cards sold by TMON and WeMakePrice is approximately three trillion won.
“Gift card investment” involves purchasing discounted gift cards online with a credit card, then converting them into payment platform points at face value to profit from the difference. Typically, discounts on gift cards range from 3 percent to 5 percent, but TMON and WeMakePrice offered discounts as high as 8 percent to 10 percent to attract investors. These platforms earned a 6.5 percent sales commission from gift card companies, added a 1.5 percent margin, and sold 50,000 won worth of gift cards at an 8 percent discount, or 46,000 won. After accounting for the 1.5 percent credit card fee, TMON and WeMakePrice ultimately incurred a 3 percent loss.
Gift card companies paid a 6.5 percent sales commission to TMON and WeMakePrice, earning a 0.3 percent to 0.5 percent profit after paying a 6.8 percent to 7 percent merchant fee to payment platforms. In turn, payment platforms charged an 8 percent fee for converting points, yielding a profit margin of 1 percent to 1.2 percent.
Consumers who bought 8 percent discounted gift cards from TMON and WeMakePrice then paid an 8 percent fee to convert them into points with payment platforms. While consumers did not profit directly from the conversion, they benefited from increased credit card usage and accrued airline miles. The more gift cards they purchased, the greater the rewards.
The biggest beneficiaries of this system were the payment platforms. Despite their losses, TMON and WeMakePrice managed to secure liquidity by using funds from gift card sales as operational capital, delaying payments to gift card companies by 40 to 70 days. Reports suggest that TMON and WeMakePrice sold an average of 230 billion won worth of gift cards each month.
However, following TMON and WeMakePrice’s recent decision to file for court receivership after failing to pay sellers, the entire ecosystem—including gift card companies, buyers, and payment platforms—is now on the brink of collapse. According to industry sources, gift card companies typically settle payments with payment platforms by the 10th of each month. Due to TMON and WeMakePrice’s financial difficulties, these companies are now unable to pay the gift card companies, which in turn cannot settle with the payment platforms. It is estimated that this month alone, gift card companies will owe payment platforms at least 200 billion won.
A representative from a gift card company expressed concern, stating, “Gift card issuers are in a dire situation, unable to foresee what will happen after the 10th due to the massive unpaid sales revenue. As a result of the TMON and WeMakePrice crisis, many gift card merchants are shutting down, leaving consumers who purchased gift cards for their intended use without options.”
Payment platforms, which are responsible for converting gift cards into points, also contributed to this situation by raising recharge limits. For example, NHN PAYCO increased the monthly recharge limit for Happymoney and Culture Land gift cards from two million won to three million won in February, and then to four million won in March. Similarly, the monthly limit for BookNLife gift cards was raised from one million won to two million won in July. KG Mobilians increased the monthly limit for BookNLife gift cards from four million won to six million won in April, and then to 10 million won last month. The daily recharge limit for Culture Gift, Happymoney, and Culture Land gift cards was also raised from one million won to six million won in April.
