[INTERVIEW] 8percent wants to take its P2P lending model global

Home > Business > Finance

print dictionary print

[INTERVIEW] 8percent wants to take its P2P lending model global

8percent 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]

8percent 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]

 
Peer-to-peer (P2P) lending in Korea could be taken global as gig-economy workers everywhere have similar income characteristics and credit profiles, according to 8percent CEO Lee Hyo-jin.
 
A deliveryman in Hanoi may not be all that different from one in Seoul, earning less, but having a similar cash flow history and borrowing needs.  
 
P2P is a form of financial technology that allows lending directly between individuals, removing a financial institution from the process. Institutional investors also extend loans through P2P services, and while this is not strictly P2P, it is still categorized that way. The loan rate is usually higher than for first-tier banks, but lower than borrowing from second or third-tier financial institutions, like savings banks or card companies.  
 
Lee started 8percent 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 business.
 
8percent offers secured and unsecured loans, with rates ranging from 5 percent to 15 percent. It takes a fee of 1.2 percent from lenders and 1 to 3 percent from borrowers.
 
With a corporate valuation between 150 billion won ($115 million) and 250 billion won, it is the No. 1 provider of P2P unsecured loans in Korea with total loans outstanding of 98 billion won. The company has received a total of 73.5 billion won in investment from a number of investors, including the Hong Kong-based BRV Capital Management, but is still in the red.  
 
"I think the future of the lending business is making loans to gig workers who cannot easily borrow from the first-tier banks," Lee said in an interview with the Korea JoongAng Daily at the 8percent office in Yeouido, western Seoul, on June 29.  
 
"Our goal is to approach them through their platforms and build gig worker credit rating models. We could use those models to approach gig workers overseas."  
 
Gig workers are freelancers who connect with individuals or businesses for short-term assignments. A driver could be a gig worker, as could a computer programmer. The global freelance market is expected to grow at a compounded annual growth rate of 15 percent through 2026, according to data from Velocity Global, a Colorado-based employment solution provider, in May.  
 
8percent signed an agreement with Life Lab, which runs a gig worker platform for cleaners, in April. 8percent plans to sign more partnerships with gig economy platforms and also connect domestic borrowers with foreign investors in the second half of the year with hopes to boost its presence overseas.
 
P2P finance firms started to surface in Korea about 5 years ago, but the reputation of the business was hit hard after a series of frauds and after high levels of non-performing loans were recorded.  
 
To protect investors, the P2P Financing Act was passed. It took effect in 2020. The act requires the operators to be registered with the Financial Services Commission (FSC). 8percent is one of the 49 registered P2P firms in Korea.  
 
Below are the edited excerpts from the interview.  
 
 
Q. Can you explain the business of 8percent?
 
A. We arrange loans for people with mid-range credit scores. They account for around 45 percent of the population. It is usually difficult for them to get loans from first-tier banks because they are not the primary targets for unsecured loans, regardless of how much they earn. Banks mainly target regular workers.  
 
With an appropriate pricing model and an efficient management method, I thought there would be a chance in a lending business targeting people with mid-range credit scores.  
 
Most of our customers are employees of small-and-mid-sized companies, those that just started working or people who have loans to the maximum at first-tier banks and are looking for additional loans.  
 
 
Why is 8percent focused on partnering with the gig economy platforms?
 
The biggest challenge we face is that we have to make customers come and visit our website. But the partnership with digital platforms for gig workers enables us to easily approach gig workers, who are rapidly growing in number.
 
For instance, 8percent's lending service is displayed on Life Lab's intranet. This allows Life Lab's gig workers to easily use our service without visiting our website.
 
Through the partnership, we also get to learn about their current income, estimate their future income and check their reviews from customers, which we can use to build credit rating models.
 
The gig economy is a growing market that cannot be overlooked. Younger people no longer believe in working for a single company throughout their careers but rather choose to have multiple jobs, like being a YouTuber or a delivery rider. The trend especially became notable following the pandemic.  
 
But gig workers cannot easily take out loans from first-tier banks, so instead turn to the second-tier financial companies that offer very high rates. We aim to target them with mid-range rates.  
 
 
Why is building their credit rating models important? How does that help 8percent enter the overseas market?
 
We can use the credit models built from domestic gig workers to offer lending services to overseas gig workers. We will have to revise the models to reflect the information of overseas gig workers. But dramatic changes won't be needed because gig workers around the world share common ground in how they make money and the type of contracts they sign. For instance, delivery riders in Vietnam earn income through delivery, just like anywhere else.  
 
This is unlike credit rating models built for office workers. Credit rating models built for credit agencies on Korean office workers cannot be easily used for office workers overseas because every country's business landscape, types of employment and information system of credit rating companies all vary.  
 
The gig economy is a global trend. People from major cities around the world use Uber, Airbnb and Grab. I believe making loans to gig workers will be the future of the lending business. The market isn't big enough for major financial institutions to jump on it yet. I think pioneering the market will be important.
 
But conversely, a successful fintech firm from abroad may easily enter Korea, adjust credit rate modeling to suit Korean gig workers and expand its influence in the domestic market.  
 
 
Does 8percent have any plans on connecting foreign investors with domestic P2P borrowers?
 
I think we may have foreign institutional investors from Asia that will start lending money to our borrowers this year.  
 
Outside Korea, most of the investment funds at P2P companies are from financial institutions. They have experience in investing in P2P businesses and are trying to expand their portfolios abroad to spread risk.
 
They seem to be very interested in the Korean market due to the rise of Korea's national brand. There is also a belief that Koreans are trustworthy because they're known to follow rules, like was seen by the mass wearing of masks following the Covid-19 outbreak.  
 
 
How will the rising base interest rate affect P2P business?
 
It could be an opportunity for 8percent from a sales perspective. Demand for loans generally declines when interest rates rise, but financial institutions more rapidly reduce the supply of loans. That means there will be an imbalance between supply and demand for loans.  
 
As banks cut down the loan supply, there will be some customers with high income that are forced to pay back a certain amount of their loans. They could come to us to draw out loans to repay the amount they borrowed from the banks.  
 
Also, at times of rising interest rates and falling asset values, people become very sensitive to even a slight difference in interest rates. The sensitivity could make 8percent more attractive than second-tier banks.  
 
When the value of stocks and virtual asset markets grew rapidly, many people easily drew out loans from non-banking financial institutions because they did not find a double-digit rate to be of much pressure. But with the asset values falling, people are looking for the lowest interest rate they can find.  
 
Such changes brought in the finance market translate to a chance for us to raise our presence. But we would of course have to well-manage risks.  
 
 

BY JIN MIN-JI [jin.minji@joongang.co.kr]
Log in to Twitter or Facebook account to connect
with the Korea JoongAng Daily
help-image Social comment?
s
lock icon

To write comments, please log in to one of the accounts.

Standards Board Policy (0/250자)