P2P Financial Companies' Consecutive Losses... Profitability Improvement Challenges (Comprehensive)

Most Leading Companies in the Industry Struggling with Losses

[Asia Economy Reporter Kim Min-young] Peer-to-peer (P2P) financial companies continue to post 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. It has been in the red for four consecutive years 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 over the past few years, increasing the number of competitors, leading to cutthroat competition through advertising expenses and fee reductions, which negatively impacts the profitability of these P2P companies.

An industry insider said, “Along with simple payment and easy remittance services, P2P has emerged as a core part 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 precarious 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. The proliferation of companies has also caused the delinquency rate to soar to 15.8%, raising concerns about investor losses.

Financial authorities recently issued a P2P investment advisory. They warned, “Investors should clearly recognize that P2P products are high-risk, high-return products that do not guarantee principal, and should understand the precautions before investing under their own responsibility.”

P2P finance is a business model where unspecified multiple investors lend money to borrowers through an online platform and receive interest. After the P2P company reviews the borrower's loan application considering credit ratings, it discloses the product, allowing investors to purchase the principal and interest receivables (loan claims) of the 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.