[DigitalToday reporter Ji-young Lee] Internet-only banks have already entered a race to lock up the market ahead of the launch of an online loan refinancing service for sole proprietors. With tighter regulations on household lending limiting growth room for the internet banks, they appear to be positioning sole proprietor loans as a new growth engine.

The financial sector said on Thursday the Financial Services Commission plans to introduce an online loan refinancing service for bank loans to sole proprietors within the first quarter of this year. System development among banks, platforms and the Korea Financial Telecommunications and Clearings Institute is believed to be in its final stages. The institute has also previously said it plans to focus on supporting inclusive finance this year by expanding refinancing for sole proprietor loans.

The Financial Services Commission expanded the refinancing service to cover sole proprietor loans because small merchants have accumulated interest burdens in a high-rate environment. The aim is to encourage competition on rates among financial companies through online refinancing and lower borrowers' financial costs.

The loan refinancing service was first introduced in May 2023 for unsecured personal loans, and later expanded to mortgage loans and jeonse loans. As of June last year, about 380,000 people used the service and cut annual interest costs by about 1.77 million won, according to compiled data. With banks reshaping the market through aggressive rate competition after mortgage refinancing was introduced, observers say a similar competitive structure could form for sole proprietor loans.

Refinancing for sole proprietor loans will initially focus on unsecured loans at banks. The commission plans to expand coverage in stages, taking into account the share of sole proprietor loans and the possibility of rapid fund movements. The commission said bank loans to sole proprietors total about 470 trillion won, with unsecured loans at about 30 trillion won as of the end of June last year. It plans to later extend coverage to the second-tier financial sector, including savings banks and mutual finance, and broaden the scope from unsecured loans to guaranteed and secured loans.

Internet banks emerge as new growth engine, race to expand sole proprietor loans

Internet-only banks are already treating sole proprietor loans as the next growth engine and competing to take an early lead. Under aggregate caps on household lending, they are shifting the centre of gravity to corporate finance with guaranteed loans and non-face-to-face platforms. If the refinancing service is introduced, the importance of remote channels that allow users to compare rates and terms at a glance is likely to grow, and some forecasts say internet banks with platform competitiveness will be in a relatively advantageous position.

KakaoBank is rapidly expanding its sole proprietor lending through cooperation with regional credit guarantee foundations. As of the end of the third quarter last year, its outstanding sole proprietor loans stood at 2.8 trillion won, the largest among internet banks. The figure rose more than 60 percent in a year, and cumulative loan supply exceeded 4.2 trillion won.

Outstanding guaranteed loans increased by more than 1 trillion won in last year alone. KakaoBank accelerated customer inflows by covering up to half of guarantee fees. It plans to roll out a "Boss Loan Refinancing" service in the first half to strengthen its competitiveness as a financial platform for sole proprietors.

K bank's outstanding sole proprietor loans last year rose 100 percent from a year earlier to 2.3 trillion won. Cumulative handled volume also surpassed 3 trillion won. The key driver was guaranteed loans. Working with regional credit guarantee foundations, K bank consecutively launched "Boss Guaranteed Loans" and livelihood-type suitable-industry guaranteed loans, expanding policy-fund type loan supply. As a result, handled guaranteed loans last year reached 240 billion won, a six-fold jump in a year, and outstanding balances rose to 330 billion won from 180 billion won. K bank plans to provide additional guaranteed loans through special contributions to credit guarantee foundations in Busan and Incheon.

Toss Bank is also putting sole proprietor unsecured loans front and centre. Its boss loan product supplied a cumulative 3.5 trillion won to 70,000 sole proprietors as of the third quarter last year since launch. Mid- and low-credit borrowers accounted for 67 percent of total outstanding sole proprietor unsecured loans, highlighting the product's inclusive finance character. It also plans to expand its sole proprietor loan lineup by introducing a joint loan model in cooperation with regional banks.

By contrast, sole proprietor loans at commercial banks are declining. The financial sector said outstanding sole proprietor loans at the five largest commercial banks - KB Kookmin, Shinhan, Hana, Woori and NH Nonghyup - stood at 324.4325 trillion won at end-2025, down 1.1893 trillion won from a year earlier. Analysts say the banks strengthened corporate finance sales centred on large companies and small and medium-sized firms with relatively strong credit and collateral as part of asset quality management.

This has led to views that a division of roles between commercial banks and internet banks is becoming clearer in the sole proprietor finance market. As commercial banks cut the share of sole proprietor loans, internet banks are rapidly absorbing the area with guaranteed loans and platform competitiveness. Some analyses also say the refinancing service could make that trend more evident.

A financial sector official said, "The refinancing service will play a role in adding competition to the ongoing trend of expanding sole proprietor loans." The official said, "The competitive landscape among banks over sole proprietor loans could emerge in earnest this year."