P2P Financial Companies' Consecutive Losses... Due to Cutthroat Competition

Challenges in Improving Profitability Ahead of Legalization Scheduled for This August

[Asia Economy Reporter Kim Min-young] Peer-to-peer (P2P) financial companies have been suffering from consecutive losses. With the enactment of the Online Investment-Linked Finance Act scheduled for August, the P2P industry faces the challenge of improving profitability.

According to the Financial Supervisory Service's electronic disclosure system on the 23rd, Terafunding (Terafintech), the industry leader with a cumulative loan amount exceeding 1 trillion won, recorded a net loss of 3.43586 billion won last year. It posted a net loss of 2.02145 billion won in 2018, marking two consecutive years of losses. This company, which mainly sells real estate P2P investment products, has been in the red continuously since it first posted a net profit of 486.16 million won in 2017.

Companies that introduced P2P finance to Korea in its early days in 2015 are also recording losses. Lendit (Lendit Social Loan), specializing in personal credit loans, posted a net loss of 2.76207 billion won last year, marking four consecutive years of losses since 2016. Another P2P company, 8 Percent, also recorded a net loss of 449.47 million won, marking three consecutive years of losses. This company turned to losses after expanding operations following a profit of about 300 million won in its founding year, 2016.

These companies are startups introducing unfamiliar businesses to the domestic market, so losses are somewhat inevitable as they expand the market. Additionally, the market has rapidly grown in recent years, increasing the number of competitors, leading to cutthroat competition through advertising expenses and various cost reductions and fee discounts, which negatively affect the profitability of these P2P companies.

An industry insider said, “Along with simple payments and easy remittances, P2P has emerged as a core of fintech (finance + technology), causing many to jump into the market and intensifying competition.”

Among the top-tier companies, Together Funding and Honest Fund turned profitable last year, earning 424.19 million won and 847.56 million won respectively. However, it is estimated that the majority of over 200 companies remain in a small-scale state. According to the Financial Services Commission, as of last month, there are 242 P2P companies with a cumulative loan amount reaching 9.6032 trillion won. As companies proliferate, the delinquency rate has soared to 15.8%, raising concerns about investor damage.

Financial authorities recently issued a P2P investment advisory. They warned, “Please clearly recognize that P2P products are high-risk, high-return products that do not guarantee principal, and invest responsibly after understanding investor precautions.”

P2P finance is a business model where an unspecified number of investors lend money to borrowers through an online platform and receive a certain interest. After the P2P company reviews the borrower's loan application considering credit ratings, it discloses the product, and investors purchase the principal and interest receivables (loan claims) of this product. P2P companies earn revenue by charging fees (about 3%) from both investors and borrowers.

This content was produced with the assistance of AI translation services.