About 74% of savings banks' investment in South Korea's online investment-linked finance industry, also known as peer-to-peer lending, is concentrated in just two operators. Regulators opened the sector to institutional money from lenders such as savings banks to reduce its reliance on retail investors, but the funds are flowing to only a handful of firms.
Of the 508.2 billion won ($347 million) in savings bank investment linked to P2P operators as of the end of July, PFCT, formerly known as People Fund, accounted for 252.2 billion won and Honest AI for 122.2 billion won, according to financial industry sources on the 13th.
Combined, the two firms held 374.4 billion won, or 73.7% of the total. PFCT took 49.6% and Honest AI 24.0%, while all remaining operators held 133.8 billion won together.
Under the linked investment scheme, savings banks provide funding for unsecured personal loans that P2P operators originate and underwrite. The Financial Services Commission designated the arrangement an "innovative financial service" in July 2024, and linked investment began in May last year. The aim was to help P2P operators raise funds and lower borrowing costs for borrowers with mid- to low-tier credit scores.
With the money flowing to a small number of firms, however, critics question whether the expansion of institutional investment is simply fueling the growth of established large operators. Unlike firms that mainly handle secured lending such as mortgages, operators focused on savings bank-linked unsecured loans can expand their loan books relatively steadily on the back of institutional funding. The larger firms say the outcome reflects market choice, but some analysts see the polarization of the sector only deepening. "Since a few operators are taking more than 70% of the savings bank investment, all sorts of talk is going around," an industry official said.
Loans funded through linked investment rose to 508.2 billion won at the end of July from 425.8 billion won at the end of June, an increase of 82.4 billion won, or 19.4%, in a single month. "Firms that have secured institutional funding can cut the time needed to attract retail investors and grow their lending," a financial industry official said. "Each operator's core product and whether it has landed institutional investors are widening the gap between firms."
As institutional money concentrates in particular firms, questions are also being raised about whether the program's original goal of easing interest burdens for mid- to low-credit borrowers is being met. Even if loan balances and volumes have grown, whether consumers' effective interest costs have actually fallen must be assessed separately, critics say.
The entry of large fintech platforms, including Toss, into P2P lending is another variable. Some incumbents worry that the arrival of major platforms will erode the competitiveness of smaller operators. Others argue that because institutional funds are already concentrated in two firms, new entrants could spur competition.
"With institutional money concentrated in a few operators, the entry of large platforms should not be viewed solely as a matter of protecting incumbents," a financial industry official said. "Participation by new players could drive competition on rates and services and improve lending terms for mid- to low-credit borrowers."