Onto Law No.1 'Lendit' CEO Kim Seong-jun: "We are 1.5 Finance, targeting mid-credit borrowers paying high interest rates" (Comprehensive)

Feeling the Loan Cliff, Founded Rendit in Less Than 100 Days
Strict Regulations Considered "Essential Requirements for Financial Companies"
Institutional Investor Participation and Possibility of Bank-Linked Loans

[Asia Economy Reporter Song Seung-seop] 'Why is there no middle interest rate?'

In 2015, Kim Seong-jun, CEO of Lendit, who was running a business in Silicon Valley, USA, had this question. When his financial situation worsened and he urgently needed to borrow 30 million KRW in Korea, he could not even consider loans from commercial banks because he was a thin filer. Reluctantly, he looked into second-tier financial institution loans and was shocked to find out that he had to pay an interest rate of 22% for a limit of 15 million KRW. Feeling the reality of the 'loan cliff,' Kim recalled the P2P (online investment-linked finance) model that was popular overseas at the time. Within less than 100 days, he founded Lendit and launched the service in about a month.

After six and a half years since founding and one year and seven months since the law passed, Kim, who registered as the first official online investment-linked finance company (OnTu business) under the Online Investment-Linked Finance Business Act, emphasized repeatedly in an interview with this paper on the 15th that "the industrial reason for the existence of OnTu business lies in solving the interest rate gap problem between first-tier and second-tier financial institutions." He explained that OnTu business is a model that solves the problem the government tried to address through qualitative improvement of household debt or inclusive finance at the private level. We met Kim Seong-jun at Lendit's office in Yeongdeungpo-gu, Seoul.

▲ There was a considerable delay until registration. What kind of work was done during that time?

We enhanced the system and also advanced the evaluation model. We improved convenience by automating the borrower's process as well. Although it was not visible externally, we were very busy.

▲ What was the most difficult part in the process of being recognized as a new industry?

It required a process of social consensus building. Persuading the National Assembly and the government was necessary. We also had to prove that there were no side effects. Since existing social agreements were formed over a long period, persuasion did not happen quickly. Moreover, the National Assembly, which decides various policies and legislates necessary matters, was not convened for six months. Going through an indefinite waiting period was tough.

▲ What were the key points addressed during the OnTu business registration process?

OnTu business registration is a process of entering the institutional system. We had to meet essential requirements as a financial company. Financial requirements, internal controls, and various mechanisms to prevent accidents as a financial company. Previously, we were an IT company with a strong technology and development focus, but it was challenging to establish compliance suitable for that. At the same time, we thought it was necessary.

▲ From an industrial perspective, why is the birth of OnTu business necessary?

The problem we are trying to solve is clear. It is to bridge the cliff between first-tier and second-tier financial institutions. The government tried to solve this under the names of qualitative improvement of household debt, inclusive finance, and finance for the underprivileged. P2P is a proven model and alternative finance that solves the middle interest rate problem through online, non-face-to-face, and big data technology. Lendit has handled about 230 billion KRW in loans over six years, half of which were refinancing loans. These are cases where customers switched from 20% interest rates in second-tier finance to mid-10% rates, saving interest. Essentially, it is an industry that can grow autonomously while solving social problems.

"OnTu business targets middle-credit customers paying high interest rates with medium returns and medium risks"

▲ What are the advantages as an investor?

For any investment product, you have to consider risk and return. OnTu business investment is medium return and medium risk. The return rate we aim for investors is around 6-7% excluding default rates. It is riskier than deposits but offers better returns, and it is the opposite of stocks or Bitcoin. It is an additional new investment destination.

▲ There is still a negative image due to high delinquency rates and various incidents. What do you think?

The most necessary thing is official filtering. It is important to receive official recognition through thorough government investigation and screening and to become institutionalized. Also, some companies handled many risky subordinated loans in real estate investment loans. We need to gradually reduce risky loans and slowly regain consumer trust.

▲ The middle interest rate loan market is hot. How will you compete with internet banks and second-tier financial institutions?

We have no reason to exist if it is not middle interest rate. Through technology investment, products will naturally have uniqueness and competitive points. However, I think internet banks compete with commercial banks, not with second-tier finance or us. We do not consider it direct competition. We are a 1.5-tier financial institution. We compete with second-tier finance. Our goal is to provide appropriate interest rates to middle-credit customers who unnecessarily pay high interest rates.

▲ What are your plans for hiring and capital raising?

We plan to focus on hiring developers to advance and automate the credit evaluation model. Capital can now be raised from institutional investors under the OnTu Act. When institutions with professional capabilities invest, indirect protection effects also occur.

▲ Do you see collaboration with existing financial companies as possible?

Citibank in the US partners with LendingClub, which offers middle interest rates when it cannot accommodate customers rejected in loan screening, and provides linked loans. Citibank also participates as an investor at the same time. I think partnerships with first-tier financial institutions can increase in Korea as well.

▲ What are Lendit's current concerns?

There are many things to comply with and consider now. The difficulty level has increased. We must not slow down the pace of innovation while complying. If you only think about compliance, innovation does not happen. That is why innovation in the existing financial sector is slow. We are also facing such challenges.