Viva Republica, operator of Toss, has set up a subsidiary to enter the online investment-linked finance business, but controversy persists. The online lending industry says conflicts of interest and fair competition issues could arise if a large loan comparison platform becomes a supplier of financial products. With related concerns repeatedly raised during National Assembly audits, attention is on how financial authorities will judge the issue during the registration review.

Toss has established a subsidiary, Toss Inclusive Preparation Corp, to enter the sector and is preparing to apply for registration with the Financial Services Commission, the financial sector said on Sunday. It plans to identify borrowers who have not been sufficiently assessed under existing credit evaluations and expand the supply of mid-interest-rate loans.

An application was earlier expected in early November, but a detailed schedule has not been finalised.

A Toss official said the timing of the application will be decided after considering consultations with relevant authorities. The official added that the start of operations also requires completion of the registration process.

From loan brokerage to product supply... online lending industry cites "conflict of interest concerns"

The biggest concern among existing online lending firms is that Toss, which operates a loan comparison and recommendation platform, would also participate in supplying loan products through an affiliate.

Toss runs a platform that compares and recommends loan products from multiple financial companies. If it adds its own online lending firm, a structure could emerge in which affiliate products and external financial companies' products compete on the same platform.

The industry says this could create conflicts of interest, including preferential exposure of affiliate products or the use of competitors' information.

On Oct. 10, six online lending firms that participate in investment linked to financial institutions, including MoneyMove, Mowda, HonestAI, 8percent, PFCT and Hanpass Financial, said in a joint statement that fair competition standards should be established before large conglomerates and major financial platforms enter the market.

They said that when a firm runs loan comparison and brokerage alongside online lending, or enters the sector through an affiliate, rules should clearly set out transparency in product recommendation and exposure standards, protection of competitors' information, and fair transaction terms between affiliates and non-affiliates.

Apart from conflicts of interest, opinions also differ over whether entry by a large operator can lead to an actual expansion of the mid-interest-rate loan market.

Online investment-linked finance lends money raised from investors to borrowers. In particular, investment linked to financial institutions is subject to restrictions such as approval procedures and investment limits by institution.

Existing firms say that even if a large platform enters the market, it could end up competing with incumbent operators for limited funds if the pool of investment resources does not increase enough.

Toss is also pursuing cooperation with savings banks for linked investment to build a funding base for its entry. DB Savings Bank and KB Savings Bank have been mentioned, but whether they will actually participate and the size of any investment have not been decided.

Fair competition issues raised in audit... Toss says separate entity prevents conflicts of interest

Concerns about conflicts of interest from Toss' entry were also raised during National Assembly audits.

At an Oct. 8 audit of the Financial Services Commission by the National Assembly's Political Affairs Committee, Min Byung-deok (민병덕) of the Democratic Party said Toss running a loan brokerage platform while entering the sector itself was like "a referee playing as a player". He also raised the possibility of giving favourable exposure to affiliate products, adjusting the loan recommendation algorithm, and using information from competing online lenders.

Choi Eun-seok (최은석) of the People Power Party also pointed to the impact Toss' entry could have on a market developed by existing financial startups and called for careful review by authorities.

At a comprehensive audit on Oct. 22, lawmakers also continued to call for examining the impact of registration on consumer protection and a sound financial transaction order.

Choi said that if Toss runs a platform while directly entering as a supplier of financial products, the competitive order could become blurred. He said authorities should closely review the impact on consumer protection and sound financial transaction order.

Toss says establishing a separate entity is itself a step to reduce conflicts of interest.

A Toss official said separating the headquarters that operates the loan comparison and recommendation service from the online lending business that directly supplies loan products into a separate entity was a decision intended to structurally reduce potential conflicts of interest between the two businesses.

The official said the firm must give priority to products with conditions favourable to consumers under the Financial Consumer Protection Act and related regulations, so it cannot adjust rankings simply because they are its own products.

The official said it plans to apply the same fees and product exposure standards to its online lending subsidiary as to other firms. The official added that sharing customer and business information between separate entities is impossible without lawful procedures, and staffing and accounting are also separated.

Effectiveness of conflict prevention measures key... focus on regulators' review

Toss has presented plans to separate entities and apply the same transaction conditions, but whether these steps can sufficiently prevent conflicts of interest in actual operations will need to be confirmed.

The online investment-linked finance law requires registration applicants to establish appropriate internal control systems, including frameworks to prevent conflicts of interest among users or between firms and users. The enforcement decree also says business plans must pose no risk of harming a sound financial transaction order, drawing attention to how authorities will assess Toss' conflict prevention framework.

Toss says it is preparing related procedures by meeting registration requirements and consulting with relevant authorities.

On the issue, Financial Services Commission Chairman Lee Eok-won (이억원) said at the audit that he would "look into it again" regarding concerns over conflicts of interest and fair competition.

An industry official said key issues include free-riding by late-entering large companies on markets developed by startups, conflicts of interest that could arise when loan brokerage and product supply are carried out at the same time, and intensifying competition over limited investment resources. The official said the current law was drafted without sufficiently considering market entry by large platforms, and institutional supplements for fair competition are needed to reflect the changed market environment.