The Big Bang of Payday Loans…from your phone to your credit card

Switching credit just got a whole lot easier. An online, one-stop loan switching service is set to open today, allowing people to find and switch loans from other lenders with better terms and conditions than their current loans from their mobile phones. “It takes 15 minutes to switch from at least two days to two business days,” according to the financial authorities.

For the financial sector, the stage is set for the start of a “money movement” between financial companies. Platforms and financial companies have been competing to attract consumers in various ways, such as further reducing interest rates and expanding the number of participating financial companies. Some secondary lenders are concerned that they could lose blue-chip borrowers to primary lenders.

“Is the interest rate lower here?”…One-Stop Loans

Loan comparison platform /graphic=Bizwatch
The Financial Services Commission announced on the 30th that from the 31st of this month, borrowers will be able to look up their existing credit loans from banks, savings banks, and card and capital companies on their mobile phones and exchange them for more favorable terms without visiting a branch.

The refinancing platform provides a service that allows users to compare loan products and switch to products with lower interest rates through a mobile app. Loan comparison platforms include Neteller, Bank Salad, Kakao Pay, TOS, Pinda, KB Kookmin Card, and Welcome Savings Bank.

There are a total of 53 financial companies that can view existing loans on the platform and financial company apps. In the banking sector, 19 banks are participating, including Industrial and Commercial Bank of Korea, Nonghyup Bank, and Shinhan Bank. In the savings banking sector, 18 companies including SBI, OK, Welcome, Accuon, and Daol, as well as 7 card companies and 9 capital companies are also partners of the loan platform.

The target is credit loans without guarantees and collateral, such as employee loans of 1 billion won or less and minor stamps, from 53 financial companies. However, overdue or disputed loans, foreclosures, and suspended transactions cannot be switched to other products. In the case of long-term card loans (card loans), the platform will be able to inquire and refinance loans from July 1.

The service is available from 9 a.m. to 4 p.m. on weekdays during banking hours. There is no limit to the number of times you can use the service, but loans that waive early repayment fees are not eligible for other products until six months after execution. Consumers who are not familiar with smartphones, such as the elderly, can still apply to switch loans at a lender’s branch and see results faster than before.

With the creation of the online, one-stop refinancing infrastructure, the regulator expects the time required for refinancing to decrease from “at least two business days” to “within 15 minutes. The Financial Services Commission initially limited the amount of loans that can be granted per financial institution per year to a maximum of 400 billion won for banks, 300 billion won and 50 billion won for savings banks and capital companies, and 10 percent of the previous year’s new sales for card companies.

This is to prevent a sharp increase in lending that could destabilize some financial firms. Shin Shin-chang, head of the Financial Services Commission’s Financial Industry Bureau, responded to concerns about excessive movement of funds between financial companies, saying, “It’s hard to say at this point how much money will be moved,” adding, “It’s still in the pilot phase, so we’ll continue to monitor trends.”

The mortgage loan refinancing service, which has a much larger scale of use by financial consumers, is expected to open by the end of the year. “With the infrastructure we have in place for the credit loan refinancing service and the experience we will gain during the operation period, we will prepare for the mortgage loan refinancing service with the goal of launching it by the end of the year,” said Shin. “However, mortgage loans are difficult to implement in a one-stop shop from start to finish in a short time.”

Fintechs and financial institutions…heated competition for refinancing

On the platform’s app, you can view your existing loans, compare loan terms from different lenders, and then go to the lender of your choice to switch. You’ll need to enter your income, work, and asset information. You’ll need to subscribe to a mydata service that consolidates your financial assets and liabilities across multiple lenders.

Fintech companies are racing to get a piece of this market. Kakao Pay boasts the presence of five major banks, including Kookmin, Shinhan, Hana, Woori, and Nonghyup, and seven companies from the tier one financial sector, including SC First and Busan. NAVER PAY is offering ‘interest support point tickets’ to further reduce the interest burden of loan users by accepting pre-applications for its loan comparison service. TOS has been accepting pre-applications for its loan switching service since the 10th of this month.

Smaller fintechs have also joined the fray. BankSalad is offering a “Best Rate Guarantee. The idea is that if a user switches loans on its platform, it will pay them an additional loan subsidy, effectively giving them the lowest rate available. Comparison lender Pinda also announced that an average of 4,000 users a day have pre-applied to switch loans.

Not only fintech companies, but financial institutions are also participating in the direct loan market. KB Card announced today that it is launching the “KB Easy Loan,” which allows users to move loans from other financial companies to KB Card loans. The loan안전놀이터, which will be available from July 31, can be obtained even if you are not a KB Card member. It can be applied for through the KB Pay app, a dedicated consultation center, and NAVER Pay.

“The reason why financial companies and fintech companies are eager to participate in this loan is not to earn commission revenue immediately, but to secure new customers through this opportunity,” said a fintech industry insider. “If financial consumers learn about the various conveniences of the platform through this opportunity, they will be more likely to use other services such as charter loans in the future.”

How to use loan-to-own services by situation/Graphic=Provided by Financial Services Commission
The remaining blue-chip borrowers…the unstable secondary market

However, there are still concerns that the secondary financial sector may lose the best borrowers to the primary financial sector. This is because it is difficult for the secondary financial sector, which is financed only by the difference in interest rates, to compete with the primary financial sector, which lends at low interest rates.

In the case of savings banks, participation is also lower than that of banks. Of the 79 savings banks in Korea, only 18 are currently planning to participate in the loan-to-own platform, or 23%. The card industry is also concerned about deteriorating profitability due to the loss of financial consumers. In the case of card companies, there is no midterm repayment fee, so there is a large possibility of churning using a loan.

An official from the secondary financial sector said, “Most of the borrowers who use the secondary financial sector are multi-debtors and do not have high credit scores.

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