[Viewpoint] The Postpaid Payment Market: A Blind Spot in Loan Regulation

Recently, the entry of big tech companies into the postpaid payment market has been remarkable. While loan regulatory measures such as weekly DSR (Debt Service Ratio) and total loan volume restrictions are being implemented comprehensively, the enthusiasm for the postpaid payment market is rather heating up. This is because the demand for small credit services among low-credit financial consumers who find it difficult to obtain credit cards is rapidly increasing. In other words, big tech companies are providing shopping and transportation payment services, as well as small loans, targeting low-credit individuals with insufficient financial history, such as university students, young professionals, and housewives. Big tech companies have focused on acquiring consumers' non-financial data based on sales information within their platforms and have also developed machine learning-based alternative credit scoring models. As a result, postpaid payments by big tech companies attract the interest of low-credit financial consumers because anyone can use these services simply by downloading the app without undergoing strict credit card issuance screening.

However, postpaid payments by big tech companies essentially correspond to small loans, and if their scale rapidly increases, they are likely to become a blind spot in financial authorities’ efforts to curb household debt. In other words, if the postpaid payment business of big tech companies, which are not subject to soundness regulatory measures applied to financial institutions such as card companies, expands, it could lead to a surge in household debt and defaults. Big tech companies are not subject to strict capital regulations and loan loss provisions under the Banking Act and the Specialized Credit Finance Business Act. Many big tech companies operate quasi-financial businesses without licenses under the pretext of innovative financial services. The expansion of the postpaid payment market led by big tech companies has thus turned on a red light for current financial stability.

Recently, following the 'split listing' of some big tech companies, many small investors suffered losses due to executives exercising stock options, and the principle of business coexistence was significantly damaged due to encroachment on local markets. The moral hazard of big tech companies, which had not been regulated under the pretext of providing consumer financial convenience, has disrupted market order, and concerns about future market monopolization and the burden on maintaining soundness are expected to increase.

Due to the financial authorities’ policies to reduce card fee rates and expand the application of preferential fee rates, card companies’ fee rates are gradually decreasing. However, the fee rates of big tech companies are rather increasing. This is a result of the intensification of platform monopolies caused by the surge in non-face-to-face transactions during the two-year pandemic. The increase in fees borne by merchants has translated into record-breaking business performance for big tech companies. Given the nature of electronic financial services, big tech companies can autonomously set their fee rates, making it more likely that fees will increase rather than decrease in the future.

While card companies are reducing various generous card benefits due to financial authorities’ regulations on high-cost marketing, big tech companies’ aggressive marketing is gaining a windfall in terms of customer acquisition. Big tech companies are not subject to any regulations for providing active additional services, such as accumulating a significant portion of payment amounts, so their market dominance is expected to expand further. The expansion of the postpaid payment business by big tech companies, which are strengthening their market dominance, is a policy issue that can no longer be overlooked.

Recently, the increase in the base interest rate has increased household interest burdens, making a decrease in disposable income inevitable. The increase in postpaid payment amounts may lead to more delinquencies, worsening household insolvency. In conclusion, it is necessary for financial authorities to strengthen soundness regulations, such as requiring loan loss provisions, for postpaid payments by big tech companies with strong market dominance.

Seo Ji-yong, Professor, Department of Business Administration, Sangmyung University

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