[Exclusive] Naver Great-Grandson's Company 'Fab' to Launch Luxury Collateral Loans in May

Luxury Community 'Sikmeonteu' and 'Sik' App Operator
Launches Luxury Collateral Loans with Peer-to-Peer Company PeopleFund
At 9% Annual Interest, Half the Rate of Pawnshop Loans

Naver’s great-grandchild company PAP is set to launch a luxury collateral loan service around May in collaboration with PeopleFund, the No.1 online investment-linked finance company (OnTu business) in Korea. The plan is to serve as a so-called 'pawnshop for the MZ generation (Millennials + Generation Z),' allowing customers to pledge luxury bags such as Chanel and Herm?s and borrow money at interest rates cheaper than those of loan companies.

According to a report compiled by Asia Economy on the 12th, PAP recently announced a pre-registration for luxury collateral loans through 'CHICMENT,' the largest domestic luxury community with 680,000 members operated by the company. PAP is a Naver great-grandchild company acquired by KREAM, a luxury resale platform, in March 2022. PAP operates CHICMENT and the secondhand luxury trading application 'CHIC,' which originated from CHICMENT.

The luxury collateral loan will be operated through an 'embedded finance (financial services within a non-financial company’s platform)' model in cooperation between PAP and PeopleFund. PAP will handle luxury item inspection and storage, while PeopleFund will be responsible for loan product design and investment attraction. According to the current luxury collateral loan product structure being designed by PeopleFund, the loan limit ranges from 1 million KRW to 100 million KRW. The loan interest rate is 0.75% per month (9% annualized), and the loan period is up to one year. Korean nationals aged 20 or older with a credit score of 350 or higher (based on NICE Information Service) can receive loans regardless of their employment or income level, as long as they have luxury bags or wallets. PeopleFund plans to turn this into an investment product, connecting investors who invest in the OnTu platform with loan demanders.

PAP will assess the condition and authenticity of luxury items provided as collateral through the expertise accumulated over approximately 13 years operating CHICMENT since 2011 and the luxury inspection center CHIC Lab, launched in June 2022 and operated via the CHIC app. During the loan period, luxury items will be securely managed 24/7 by a security company and CCTV. Insurance will also be subscribed to cover potential risks such as fire. Currently, if an item traded through CHIC is found to be counterfeit after inspection, 300% of the transaction amount is compensated. The inspection failure rate over two years of operating the CHIC app is as low as 0.007%, demonstrating high accuracy. CHIC surpassed a cumulative transaction amount of 100 billion KRW just one year after its service launch in July last year.

Recently, loans among young people with weak economic conditions have increased due to prolonged economic recession and employment difficulties. The delinquency rate on credit loans among the 20s and 30s age groups is on the rise. According to data submitted by 19 domestic banks to Hong Sung-guk, a member of the Democratic Party, as of the end of June last year, the credit loan delinquency rate for people in their 20s was 1.4%, doubling from 0.6% the previous year. For those in their 30s, it was 0.6%, twice the 0.3% from the previous year. During the same period, the number of credit loan borrowers was 6,886,815, increasing only among those in their 20s and those aged 60 or older. The number of borrowers in their 20s was 691,948, an increase of about 80,000 in one year. The main reasons for the increase in youth loans include the COVID-19 pandemic, the surge in borrowing for stock and Bitcoin investments, and the prolonged economic downturn.

The MZ generation, who find it difficult to use first- and second-tier financial institutions, often visit pawnshops to pledge IT devices or luxury goods and borrow money. PAP and PeopleFund have focused on luxury collateral loans because luxury items have relatively stable collateral value and the service can be offered at rates cheaper than the legal maximum interest rate (20% annually) applied by pawnshops. For example, if a borrower pledges a luxury item and borrows 1 million KRW at a pawnshop, they must pay 16,600 KRW in interest per month, but the product planned by PAP and PeopleFund charges about half that amount, 7,500 KRW. The entire process of pledging luxury items, inspection, and borrowing money can be easily done online. If the borrower fails to repay within the deadline, the luxury item can be resold as secondhand through CHIC or other channels, enabling quick principal protection for investors. A PeopleFund official said, "We are currently conducting a preliminary demand survey and plan to launch the service in cooperation with PAP as early as May."