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Consumers wait outside of TMON’s headquarters in Gangnam’s Sinsa neighborhood in Seoul on July 25, 2024. (Jo Yeong-eun/Hankyoreh)

The mass withdrawal of merchants from TMON and WeMakePrice, Korea’s fourth and fifth largest e-commerce companies, and customers’ demands for refunds following delayed payments for merchants are starting to look like a bank run. The Korean government needs to take swift action to minimize the fallout and find and close any legislative loopholes to prevent a repeat.

There was a serious commotion in the Samseong neighborhood of Seoul’s Gangnam District on Thursday when some 300 customers of WeMakePrice congregated at the company headquarters to demand refunds. Anxious people gathered from around the country after online refund processing was shut down.

Large retailers including travel agencies, department stores and shopping websites removed products from TMON and WeMakePrice around July 19 after the two platforms stopped settling payments for their merchants this month. Travel agencies have been canceling packages on the grounds that sales were never settled and asking customers to shoulder the heavy burden of repurchasing.

This seems certain to cause a string of bankruptcies among small and medium-sized merchants with insufficient cash reserves that sell on the platforms. 

The TMON and WeMakePrice fiasco, which affects a total of 8.6 million monthly users, is the result of cutthroat competition and a reckless race to dominate the market through acquisitions. Business operations for Korean e-commerce platforms have gotten tougher recently because of a flood of low-cost products on Chinese platforms AliExpress and Temu.

Qoo10 chairman and Gmarket founder Ku Young-bae sought to build his Singapore-based company through an aggressive M&A program that included acquisitions of not only TMON and WeMakePrice, but also Interpark Commerce and US e-commerce company Wish. That drive has apparently left the company in a liquidity crisis, market watchers say.

Qoo10 bought Interpark Commerce from Yanolja last year but has yet to settle the bill for the acquisition. And TMON has still not released its auditor’s report for the 2023 fiscal year.

Online marketplaces like these e-commerce platforms work by bringing together merchants to sell their wares. TMON and WeMakePrice had basically functioned as a Ponzi scheme where merchants weren’t paid for customers’ purchases until a month or two later.

That makes it possible for the platform operators to divert revenue for other purposes. Some had suggested making institutional changes such as requiring revenue to be deposited in escrow accounts, but none of those suggestions were implemented.

The position of the Korea Fair Trade Commission was that the issue of e-commerce platforms not settling merchants’ bills was categorized as defaulting on loans under civil law and was thus not subject to the Fair Trade Act.

In effect, the practice fell into a legal gray area. Perhaps the government has been too complacent about e-commerce platforms that handle the funds of millions of customers and dictate the livelihoods of countless small and medium-sized merchants.

Please direct questions or comments to [english@hani.co.kr]