Last week, South Korea’s e-commerce industry plunged into turmoil as two well-known platforms affiliated with Singapore-based Qoo10 Group failed to make payments to sellers, reportedly due to liquidity issues, amid mounting concerns over an industrywide impact.

As the crisis deepened over deferred payments, retail vendors and travel agents suspended services or terminated contracts with Tmon and WeMakePrice. Thousands of customers rushed to the two companies’ headquarters to demand refunds.

Tmon and WeMakePrice are ranked the No. 4 and No. 5 players in the Korean e-commerce market, respectively. The total number of customers who have signed up for the e-commerce services of the two firms stands at over 8.6 million. And most of the 60,000 vendors selling their products through Qoo10 affiliates are small merchants and the self-employed, a group vulnerable to abrupt payment failures.

On Thursday, Korean financial and antitrust authorities kicked off joint on-site investigations into Tmon and WeMakePrice to identify what led to missed payments. The Financial Supervisory Service said that the value of payment delays was estimated to reach as much as 170 billion won ($122.7 million). On Friday, the presidential office said it is “closely watching” the incident that prompted delayed payments and related ministries are working on measures.

The e-commerce turmoil began to draw media attention on July 7 when 500 WeMakePrice vendors raised questions about delayed payments. This situation led to payment delays at Tmon, and sellers at both companies became more concerned as Qoo10 was reportedly in a tight cash situation resulting from aggressive merger deals.

Qoo10 was launched by Koo Young-bae in 2010. He also established GMarket, a Korean e-commerce platform, which was sold to US-based eBay in 2009. Qoo10 has expanded its business by taking over Tmon in 2022 and Interpark Commerce and WeMakePrice last year.

Qoo10, which also has operations in Japan, China, Hong Kong, Malaysia and Indonesia, spread its business portfolio further this year by acquiring North America-based e-commerce platform Wish for $173 million in February and AK Mall, a midsized Korean department store chain, in March.

On Sunday, Qoo10 is said to be seeking to raise $50 million in August to resolve delays in payments by the two local platforms. But a senior official of the financial authorities said the proposed move was not enough to address the problems.

Whether the merger spree of Qoo10 directly triggered the financial woes that hit Tmon and WeMakePrice remains unclear. Given that rumors are swirling about other factors at work, the authorities should scrutinize the case and identify related problems in detail.

Aside from the cause, however, financial and trade regulators are under fire for failing to spot potential problems in advance and take proactive measures.

The Fair Trade Commission and the Financial Supervisory Service belatedly sent officials to Tmon and WeMakePrice offices in Seoul to see whether they have violated the e-commerce transaction act, terms of contracts with sellers and customers and other rules.

It is not the first time the domestic e-commerce sector has been engulfed in payment woes. In 2021, a popular online discount app Mergepoint abruptly halted the circulation of Mergemoney, catching customers off guard and resulting in disrupted services and damage.

The government, however, did not take proper measures to strengthen rules over e-commerce business and set up protections for customers exposed to potential risks linked to online purchases.

For instance, a revision bill on e-commerce trade that makes it obligatory for firms to comply with refund clauses has been mired in delays. It is now scheduled to be enforced from September.

To resolve the fundamental online payment issue, the government must require e-commerce firms to opt for prompt payments or rely on escrow services via financial firms to ensure reliability. The FTC and relevant regulators must overhaul e-commerce payment procedures and strengthen regulations to protect both vendors and customers.