[Song Seungseop's Financial Light] Why Do Banks Reject Debt Refinancing Platforms?

Political Sphere Rekindles Debate on Large Debt Consolidation Platforms
Banks Warn "High Risk of Dependency on Platform Operators"
Big Tech and Fintech Say "Disregards Financial Consumers"

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On the 7th, a scene at a bank counter in Seoul as major commercial banks continue to lower loan interest rates and raise interest rates on regular savings and installment savings products. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Song Seungseop] How great would it be if you could look at all financial institutions’ loan interest rates and limits in one place and easily switch to the most advantageous product? If such a refinancing loan service were simply launched, many financial consumers would rush to sign up, but it has never actually been implemented. Although financial authorities, who have strong influence over financial companies, have taken the lead, it has repeatedly failed. Why is that?

Discussions about a refinancing loan platform began in February last year. At that time, the Financial Services Commission announced plans to launch a service that allows switching to cheaper loan products through a mobile phone application (app). Starting with a pilot operation in the banking sector in October of that year, the goal was to include the secondary financial sector by December. Discussions also began between bank and fintech company practitioners, but despite the ambitions, there were continuous conflicts.

Banks’ "Concerns about Dependency" vs. Big Tech’s "Consumer Convenience"

Banks were concerned that Big Tech and platform companies might take the lead. Fundamentally, financial companies face the risk of losing customers to competitors. The more financial consumers use platforms, the greater this risk becomes. To secure customers, banks have no choice but to rely more on platforms, leading to ongoing criticism that the loan market could become dependent on large platforms. The concern is that the financial industry will be reorganized around Big Tech companies.

When the Financial Services Commission decided to use existing fintech platforms rather than banks or new platforms for the refinancing loan platform, opposition intensified. Although the intention was to foster the fintech industry, banks complained that the separation between manufacturing and sales could worsen. Simply put, the expectation was that banks would create loan products, while platform operators would earn the money. At that time, some major banks even declared a kind of independence by announcing plans to create their own refinancing loan platforms.

Commission levels were also a major issue. If consumers constantly check refinancing loan platforms and keep switching loans, financial companies have to pay more commissions to the platforms. If the commission rate of the refinancing loan platform is higher or similar to the rates publicly announced by Big Tech companies, financial companies find it less attractive to participate because the cost outweighs the benefit.

The secondary financial sector is also not welcoming of refinancing loan platforms. This is because high-quality customers might leave. In the card industry or savings banks, which mainly serve low-credit customers, interest rates often approach the legal maximum of 20%. If they have to compete with internet-only banks with strong capital power over loan interest rates, they could lose most medium-credit customers. Given that financial consumers tend to prioritize interest rates, this could spread a negative image of the industry.

Discussion Reignited by the National Assembly... Will It Be Different This Time?

On the other hand, the positions of Big Tech and fintech industries differ somewhat. They argue that the refinancing loan system should be integrated into a single platform for consumer convenience, but existing financial companies are reluctant to actively participate due to concerns about profit reduction. Many Big Tech companies have been selected as operators of refinancing loan platforms, and since competition is required, they expect no monopoly issues.

The refinancing loan platform discussion effectively stalled in October last year when financial authorities introduced stringent debt measures. They began to implement measures to curb the rapidly increasing loan growth, and encouraging refinancing loans was seen as potentially increasing and stimulating loan demand. Banks also temporarily suspended their own refinancing loan platform discussions in line with the financial authorities’ stance.

Sung Il-jong, Chairman of the Policy Committee of the People Power Party (left), and Park Hong-geun, Floor Leader of the Democratic Party of Korea

The quiet refinancing loan platform project has recently been restarted by the political sector. As the base interest rate rose and loan interest rates increased, refinancing loan platforms emerged as one way to ease the burden on financial consumers. On the 5th, Seong Iljong, the Policy Committee Chair of the People Power Party, urged financial authorities to “swiftly promote the refinancing loan platform project.” The next day, Park Honggeun, the floor leader of the Democratic Party, requested the “urgent introduction of a one-stop loan transfer system (refinancing loan platform).”

The problem lies in the persistent differences in views between the banking sector and Big Tech. Since this project caused sharp conflicts to the extent that banks pursued an independent path, it is highly likely that debates will continue this time as well. Kim Kwangsoo, chairman of the Korea Federation of Banks, also said at an online press conference this year, “I believe it will not be easy to smoothly establish a refinancing loan platform.”

However, political pressure is considered a variable. Since the National Assembly, regardless of party, has demanded the launch of a refinancing loan platform, it is predicted that financial companies will find it difficult to openly reject it.

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