The South Korean government is moving forward with a plan to require online intermediary platforms, such as Coupang and Naver, to transfer payments to sellers within 20 days of a consumer’s purchase. Additionally, these platforms will be obligated to deposit 50% of consumer payments with a secure third party, such as a bank. These reforms are part of broader efforts to prevent a repeat of the TMON and WeMakePrice crisis, which left 40,000 small businesses with 1.3 trillion won (approximately $963 million) in unpaid settlements between June and August.
According to political and industry sources, on Oct 9., the government and the ruling party finalized amendments to the Act on Fair Transactions in Large Retail Business (commonly referred to as the Large Retail Business Act) and will soon announce the changes. These reforms, developed in response to the TMON-WeMakePrice crisis, follow consultations with consumers, sellers, and platform operators and were crafted within just two months. The new regulations will apply to both product intermediary platforms like Coupang, Naver, 11Street, and Gmarket, as well as service platforms, including Baemin, a major food delivery service, and Yanolja, a leading accommodation booking platform.
The TMON-WeMakePrice crisis, described as a “major disaster in e-commerce,” involved the misappropriation of funds intended for sellers of travel products and gift cards, causing severe cash flow issues. As a result, 48,124 sellers were left with unpaid settlements totaling 1.2789 trillion won (approximately $947.54 million), with 981 sellers owed over 100 million won each. Prosecutors have since sought the arrest of Qoo10 Group CEO Ku Young-bae on charges of fraud, holding him accountable for the crisis.
A key element of the new regulations is the requirement for intermediary platforms to settle payments to sellers within 20 days of a consumer’s purchase confirmation. This marks the first time such platforms will face a legally mandated payment deadline.
Currently, large retailers like E-Mart and Lotte Mart, which purchase and sell products directly, are required to settle payments with suppliers within 40 to 60 days to prevent them from using their market dominance to delay payments. However, intermediary platforms like TMON and WeMakePrice have operated without similar oversight. TMON, in particular, extended its payment cycles beyond 60 days, using unpaid funds for corporate acquisitions, which is widely seen as a key factor in the e-commerce crisis.
To address this issue, the payment deadline will now be extended to intermediary platforms to prevent any further “misappropriation of funds.” One industry insider commented, “As the online retail market expands, there is growing concern that large intermediary platforms could manipulate their payment schedules, similar to practices observed in large supermarkets. These reforms directly tackle that issue.”
For service platforms, such as those in the travel or lodging sectors, the settlement deadline will be five days after the start of the service, rather than the purchase confirmation date. This accounts for the time gap between purchase and service delivery, such as a hotel stay booked months in advance. The five-day deadline accommodates the possibility of cancellations or changes before the service is provided.
The government also plans to introduce an escrow system, requiring platforms to deposit 50% of consumer payments with a financial institution to safeguard against fund misappropriation. Initially, the Korea Fair Trade Commission (KFTC) considered requiring a 100% deposit, but opposition from smaller platforms, citing concerns over cash flow, led to a compromise of 50%. This adjustment aims to strike a balance between financial security and liquidity in the industry. Both the payment deadline and escrow requirements will be mandatory, with platforms facing fines or corrective measures for non-compliance. Repeat offenders could potentially face criminal prosecution.
