[INTERVIEW] 8% want to generalize their P2P lending model

[INTERVIEW] 8% want to generalize their P2P lending model

8% CEO Lee Hyo-jin poses at the company’s office in Yeouido, western Seoul, following an interview with the Korea JoongAng Daily on June 29. [PARK SANG-MOON]

According to Lee Hyo-jin, CEO of 8%, peer-to-peer (P2P) lending in Korea could be global, as gig economy workers everywhere have different income characteristics and credit profiles. similar.

A delivery person in Hanoi may not be so different from a delivery person in Seoul, earning less but having a similar cash flow history and borrowing needs.

P2P is a form of financial technology that allows direct lending between individuals, removing a financial institution from the process. Institutional investors also lend through P2P services, and while it’s not strictly P2P, it’s still classified that way. The lending rate is usually higher than for first-tier banks, but lower than for borrowing from second- or third-tier financial institutions, such as savings banks or card companies.

Lee launched 8% in 2014. A graduate of Pohang University of Science and Technology with a degree in mathematics, she worked at Woori Bank for eight years before starting the company.

8% offers secured and unsecured loans, with rates ranging from 5% to 15%. It charges a fee of 1.2% from lenders and 1-3% from borrowers.

With an enterprise valuation of between 150 billion won ($115 million) and 250 billion won, it is Korea’s top P2P unsecured loan provider with total outstanding loans of 98 billion won. The company has received a total of 73.5 billion won in investments from a number of investors, including Hong Kong-based BRV Capital Management, but is still in the red.

“I think the future of the lending industry is to provide loans to construction workers who cannot easily borrow from tier-one banks,” Lee said in an interview with the Korea JoongAng Daily at the 8% office. in Yeouido, western Seoul, on June 29. .

“Our goal is to approach them through their platforms and create gig worker credit scoring models. We could use these models to approach overseas gig workers.”

Gig workers are freelancers who connect with individuals or companies for short-term assignments. A conductor could be a gig worker just like a computer programmer. The global freelance market is expected to grow at a compound annual growth rate of 15% through 2026, according to data from Velocity Global, a Colorado-based employment solutions provider, in May.

8% signed an agreement with Life Lab, which runs a work platform for cleaners, in April. 8% plans to sign more partnerships with market economy platforms and also connect domestic borrowers with foreign investors in the second half of the year in hopes of boosting its overseas presence .

P2P finance companies started popping up in Korea about 5 years ago, but the company’s reputation was hit hard after a series of frauds and high levels of non-performing loans were recorded.

To protect investors, the P2P Funding Law was passed. It came into force in 2020. The law requires operators to be registered with the Financial Services Commission (FSC). 8percent is one of 49 P2P companies registered in Korea.

Below are edited excerpts from the interview.

Q. Can you explain the 8% activity?

A. We arrange loans for people with average credit scores. They represent about 45% of the population. It is usually difficult for them to get loans from top tier banks because they are not the main targets for unsecured loans, regardless of their income. Banks mainly target regular workers.

With a proper pricing model and an effective management method, I thought there would be a chance for a lending company targeting people with average credit scores.

Most of our clients are employees of small and medium enterprises, those who have just started working or people who have maximum loans in first tier banks and are looking for additional loans.

Why do 8% focus on partnering with gig economy platforms?

The biggest challenge we face is that we have to get customers to come and visit our website. But partnering with digital platforms for gig workers allows us to easily approach gig workers, whose numbers are growing rapidly.

For example, the 8% loan service is posted on the Life Lab intranet. This makes it easy for Life Lab employees to use our service without visiting our website.

Through this partnership, we can also learn more about their current income, estimate their future income, and verify customer reviews, which we can use to create credit scoring models.

The gig economy is a growing market that cannot be overlooked. Young people no longer believe in working for a single company throughout their career, but rather choose to have several jobs, such as being a YouTuber or a delivery person. The trend has become particularly notable after the pandemic.

But construction workers can’t easily get loans from tier-one banks, so look instead to tier-one financial companies that offer very high rates. We aim to target them with average rates.

Why is it important to build their credit scoring models? How does this help 8% enter the overseas market?

We can use the credit models built from local workers to offer loan services to foreign workers. We will need to revise the templates to reflect information from overseas gig workers. But dramatic changes won’t be necessary because workers around the world share common ground on how they make money and what kind of contracts they sign. For example, delivery men in Vietnam earn income through delivery, just like everywhere else.

This is different from credit scoring models designed for office workers. Credit scoring models designed for credit agencies on Korean office workers cannot be easily used for overseas office workers, because each country’s business landscape, job types and system Information from credit rating companies all vary.

The gig economy is a global trend. People in major cities around the world use Uber, Airbnb and Grab. I believe lending to construction workers will be the future of the lending industry. The market is not yet big enough for the major financial institutions to get into it. I think being a pioneer in the market will be important.

But conversely, a successful foreign fintech company can easily enter Korea, adjust the modeling of credit rates to Korean workers, and expand its influence in the domestic market.

8% consider connecting foreign investors with domestic P2P borrowers?

I think we could have foreign institutional investors from Asia starting to lend money to our borrowers this year.

Outside of Korea, most investment funds from P2P companies come from financial institutions. They have experience investing in P2P businesses and try to expand their portfolios overseas to spread the risk.

They seem to be very interested in the Korean market due to the rise of the Korean national brand. There is also a belief that Koreans are trustworthy because they are known to follow the rules, as seen by the mass wearing of masks after the Covid-19 outbreak.

How will the rise in the base interest rate affect P2P activities?

This could be an opportunity for 8% from a sales perspective. The demand for loans generally decreases when interest rates rise, but financial institutions reduce the supply of loans more quickly. This means that there will be an imbalance between supply and demand for loans.

As banks reduce the supply of loans, some high-income customers will be forced to repay a certain amount of their loans. They could come to us for loans to repay the amount they borrowed from the banks.

Moreover, in times of rising interest rates and falling asset values, people become very sensitive to even a slight difference in interest rates. Sensitivity could make 8% more attractive than second-tier banks.

When the value of stocks and virtual asset markets rose rapidly, many people easily took loans from non-banking financial institutions because they did not find a double-digit rate to exert significant pressure. But with asset values ​​falling, people are looking for the lowest interest rate they can find.

These changes to the financial market translate into an opportunity for us to increase our presence. But of course, the risks should be well managed.

BY JIN MIN-JI [jin.minji@joongang.co.kr]

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