Visa and MasterCard will be obliged to cut their membership fees for Korean consumers by 50 percent compared to the current level, under instructions by financial authorities.

“After offering a grace period of about six months, the regulatory policy will take effect in the latter half of 2014,” said an official at the Financial Supervisory Service.

The stern action of the authorities comes after allegations that the two major companies have allegedly made dubious contracts with Korean credit card issuers, which could impose excessive membership burdens and international settlement service fees on cardholders.

In particular, many local consumers, who only use their cards in the domestic market, currently have to bear the burden of Visa and MasterCard membership fees.

The firms’ annual membership charges for local consumers are likely to be cut in half to between 3,000 won ($2.80) and 5,000 won, reduced from the present level of 5,000 won to 10,000 won, according to FSS officials.

Meanwhile, the two companies have reportedly protested the supervisory guidance measures, citing provisos in the Free Trade Agreement between South Korea and the United States.

In the settlement sector, the FSS is looking into irregularities involving possible exploitation of their duopolistic status as the two biggest global settlement brokers.

According to FSS data, Korean cardholders paid an extra 36 billion won on overseas purchases in 2012 by making transactions based on the Korean won and not the currency at the locations where purchases were made.

Local cardholders and issuers pay tens of millions of dollars every year in royalties and commission to the multinational credit card giants. The two firms capture more than 90 percent of the Korean market.

By Kim Yon-se (kys@heraldcorp.com)