[Loan? Switch!] ② All at Once Online... Will the 'Daehwan Loan Platform' Rise Next Year?

1st Financial Sector "Fintech Dependence"... 2nd Financial Sector "High-Credit Borrower Departure" Concerns
Last-Minute Disputes Expected Among Stakeholders Over Brokerage Fees and Information Provision Levels

[Asia Economy Reporter Yu Je-hoon] Office worker Park Jeong-ha (37) recently downloaded and then deleted a loan brokerage application (app) to refinance her 30 million KRW credit loan with a better interest rate product from a commercial bank. The platform only partnered with one commercial bank, making it unnecessary for Park. She said, "I think I will have to take a day off and visit bank branches in person."

As more borrowers are considering refinancing due to the burden of high interest rates, financial authorities are rushing to establish a 'refinancing loan platform' aimed for launch in May next year. About 50 institutions from the first and second financial sectors, including commercial banks, mutual savings banks, and specialized credit finance companies (card and capital), are set to participate, while authorities and industry sectors are currently coordinating key issues.

According to the financial sector on the 27th, financial authorities and industry players are in discussions to build an 'online refinancing loan transfer system' among financial companies, targeting a launch in May next year. This system is designed for personal loans and involves participation from various financial institutions. It will serve as an online, one-stop system that intermediates refinancing loan repayment requests, provision of necessary information such as repayment amounts, and final repayment confirmation through the Financial Services Commission network. The goal is to first apply this system to standardized loans such as credit loans that can be transferred online without additional procedures like collateral transfer, according to each institution's loan transaction terms.

The reason authorities and the financial sector are preparing this system is due to the rapid interest rate hikes this year, which have increased the number of borrowers considering refinancing. According to Bank of Korea statistics, the weighted average interest rate on household loans from deposit banks was 5.34% in October, the highest in over a decade, while mutual savings banks' weighted average interest rate reached 13.54%. The number of refinancing loan cases is also rising sharply. According to the loan brokerage platform Finda, refinancing loan cases increased tenfold from 509 in the first quarter to 5,660 in the third quarter. The refinancing loan amount also surged tenfold from 9.5704 billion KRW to 107.96438 billion KRW.

However, refinancing loans still heavily rely on 'footwork' due to insufficient related infrastructure. Without an online system connecting institutions, borrowers seeking refinancing must visit existing financial institutions' branches or obtain various documents via phone or fax. Financial institutions also require bank staff or legal professionals to handle existing loan repayments. This presents significant limitations in terms of time and cost.

Information is also limited. Some fintech companies provide rough information such as principal and interest through MyData services, but important details like various fees incurred during refinancing and the extent of interest reduction are not provided. Moreover, major commercial banks (KB Kookmin, Shinhan, Woori, Hana, NH Nonghyup) have low participation in various loan brokerage platforms mainly operated by fintech companies.

In response, authorities plan to build an online, one-stop refinancing loan transfer system to fully digitize related procedures and reduce time and costs for both borrowers and financial institutions. A financial authority official said, "Once this system is introduced, it will improve operational efficiency for both financial consumers and companies, and major financial sectors handling refinancing loans are expected to offer consumers a variety of loan conditions."

Information provision, which was previously limited, will also be expanded. Initially, the plan is to open the door for not only fintech companies but also financial institutions to provide refinancing loan comparison services. Additionally, detailed loan information such as various costs and benefits, which were not previously available, will be accessible on the platform. Measures to protect financial consumers will also be implemented. To prevent financial companies from prioritizing their own loan products or engaging in actions conflicting with consumer interests, the platform's comparison and recommendation algorithms will undergo strengthened verification. Besides verification by Koscom under the Financial Consumer Protection Act, cross-verification by additional entities and periodic re-verification will also be conducted.

The key issue lies in differences among stakeholders. Discussions on the refinancing loan platform have been ongoing since about three years ago in 2020, but have repeatedly stalled due to opposition from commercial banks concerned about big tech market dominance, and from mutual savings banks and credit finance companies fearing loss of borrowers to first-tier banks. A representative from a credit finance company said, "In the case of long-term card loans (card loans), there are no prepayment penalties, so customer churn is relatively easy," adding, "If relatively high-credit borrowers flock to first-tier banks, interest rate spreads will have to be adjusted accordingly, which will directly affect profitability."

There are also concerns that consumer benefits may not be substantial. A recent report by KB Management Research Institute stated, "Considering the reality where appropriate interest rates are limited by price intervention and customer groups are separated by sector, actual customer movement may be restricted, so the platform may not offer significant benefits from the customer's perspective," and added, "Due to risk segmentation, consumers with weak credit may bear higher interest rates than before or may be denied loan provision altogether."

Financial authorities are operating a task force (TF) involving banks, mutual savings banks, credit finance companies, and fintech industries to build the refinancing loan platform. A Financial Services Commission official said, "At this point, major issues remain regarding brokerage fees and the level of information banks provide to loan brokerage platforms," and added, "We are narrowing differences through the TF with the goal of launching the platform next year."