Mobile money: Phone loans rise

On a recent weekend, a 33-year-old office worker, who wished to be identified only by his family name Kim, visited an apartment in Sindorim, western Seoul, which he hoped would be a new home for him and his bride-to-be.

The realtor said the jeonse, or lump-sum rental deposit, on the apartment was 250 million won ($217,300). Kim decided to take the realtor up on the offer since it was difficult to find a rent for that price in Seoul. He became worried when the realtor told him that two other clients were scheduled to see the apartment.

The problem was he needed 25 million won to sign the contract. He had 10 million won in his possession and another 10 million won that he had borrowed on a short-term loan. But still he was short 5 million. If he waited until Monday when the banks opened, another person might sign up on the apartment.

He considered taking a cash loan from his credit card. But when he turned on his bank app, he saw the banner “mobile loans for office workers.”

Kim followed the instructions as he was told on the smartphone and was able to take out a 5 million won loan with an annual interest rate of 4.3 percent in just 10 minutes. If he had taken out cash from his credit card, he would have had the burden of a much higher interest rate.

Mobile banking services via smartphone have now advanced beyond clients subscribing to financial products deposits and funds and now allow access to loans.

One of the strengths of mobile loans is that it is easy to borrow with a low interest rate.

The biggest selling point of the mobile loan is that it is cheap. The target customers are those with high credit scores. It is especially targeting customers who need money for an emergency and were considering taking out unsecured loans through their credit cards as banks’ businesses hours are over.

The maximum that can be borrowed is between 10 million won and 20 million won and there are no other requirements if there are no problems with the credit scores. With a simple touch on the smartphone, the loan is delivered in just 10 minutes.

“The loan can be borrowed anytime and it doesn’t ask for additional commission when the loan is paid back in full before it matures,” said Lee Jeong-woo, Woori Bank’s public relations official. “For those needing an immediate loan, they can borrow it conveniently as a credit card loan but at a much cheaper interest rate.”

Since the mobile loan does not evaluate the person seeking loans face-to-face and review the documents that have bene presented, it is offered only to office workers whose income is verified through the four basic insurances that are subscribed to when hired including health insurance and employment insurance.

Additionally the banks using its loans provided on its mobile platforms are expanding into the auto loan market, which was previously dominated by capital companies.

In February last year, Shinhan Bank introduced its mobile auto loan My Sunny Car. The bank since then has provided a total of 371.4 billion won in loans to 17,319 clients.

The interest rates on the loan are in the mid 3 percent. Even those who have never been a client of Shinhan Bank can take out a loan when they open a new bank account.

Even mortgage loans are borrowed through mobile platforms. The point here is also “lower interest rates.”

Woori Bank last month introduced a WeBee apartment loan, which is the first among banks.

Other than when purchasing the apartment, through an electronic agreement the person seeking the mortgage can request consulting and even the loan itself without ever having to visit the branch.

Usually those who are looking for mortgage loans visit the bank in person because of the huge amount and the documents that they have to submit when requesting for the loan. However, as the key interest rate is at a historic low, there have been a growing number of people who are looking for loans at low interest rates.

Banks can offer such low interest rates because they could cut back on costs including spending on employee salaries, branch leases and even on documents.

When taking out loans through the mobile platform, the banks could lower the interest rates roughly 0.1 percent points without any other conditions attached.
Additionally customers using mobile banking have been growing rapidly.

According to Hana Financial Group research institute, since Barclays started introducing unsecured loans through mobile devices in 2014, it now accounts for 43 percent.

“Soon we will be in a world where it would be weird not to have a financial transaction that is executed within a person’s hand,” said Sean Shin, CEO of Dayli Financial Group, which comprises fintech companies.

“If a bank wants to expand its mobile loan market, they shouldn’t rely only on analysis that is based on transaction information,” said Baek Jong-ho, a senior researcher at Hana Institute. “They need to advance and breakdown its analysis method based on big data.”

BY KO RAN, SHIM SAE-ROM [lee.hojeong@joongang.co.kr]