[DigitalToday reporter Lee Ji-young (이지영)] A battle is brewing in the sole proprietor loan market, estimated at about 1,000 trillion won. As a refinancing service for sole proprietors’ unsecured loans starts, competition to win customers between banks and fintech firms has begun in earnest.

The Financial Services Commission said a "sole proprietor unsecured loan refinancing" service will begin on March 18, allowing sole proprietors to switch via smartphone to loans with lower interest rates.

The service covers working-capital loans of up to 1 billion won among banks’ unsecured credit loans to sole proprietors. Sole proprietors can use loan-comparison platforms or bank applications to check the interest rate and balance of existing loans, compare products from other banks and switch to loans with better terms.

A total of 18 banks are taking part. Participants include major commercial banks such as KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup, iM Bank and IBK Industrial Bank of Korea, along with regional banks and internet-only banks. Channels include five loan-comparison platforms and bank apps. The platforms are Naver Pay, Kakao Pay, Toss, BankSalad and KakaoBank. Including bank apps, the service will be available through more than 20 channels.

After comparing loans, borrowers who choose a new product will go through a non-face-to-face review and the loan will be executed, while existing loans will be repaid automatically through the Korea Financial Telecommunications and Clearings Institute’s loan transfer system. The service will be available from 9 a.m. to 4 p.m. on business days and is set to be extended to 10 p.m. after it stabilises.

Financial authorities see the service as an opportunity to reduce small merchants’ financial costs and spur competition in the financial sector. The online loan refinancing service had previously expanded to include personal unsecured loans, home-backed loans and jeonse loans, with about 420,000 people using it through the end of last year. Loans totalling 22.8 trillion won moved to lower interest rates, with an average rate cut of 1.44 percentage points, producing an annual interest-saving effect of about 1.69 million won per borrower.

◆ Fintech platforms join...competition seen widening

The role of fintech platforms is expected to grow in this service in particular. As platform-based loan comparison functions allow sole proprietors to check products from multiple financial firms at once, competition over customer touchpoints is likely to widen.

Major fintech platforms such as Toss, Naver Pay, Kakao Pay and BankSalad plan to strengthen related functions and promotions in line with the service launch.

As a result, banks’ interest-rate cut strategies to pre-empt the small merchant loan market and fintech platforms’ competition on convenience are expected to heat up further.

Within financial authorities, there are also concerns, reports said, about whether banks will engage in aggressive rate competition in the sole proprietor loan market. Sole proprietor loans carry relatively high risk due to economic fluctuations.

As the service begins, some banks are rolling out differentiation strategies. Shinhan Bank will offer the service through its own app, Shinhan SOL Bank, and loan-comparison platforms. It will support refinancing of working-capital unsecured loans of up to 100 million won for sole proprietors aged 19 or older who hold a business registration certificate, and will also allow an increased refinancing if additional funds are needed at the same time as the existing loan is repaid.

KB Kookmin Bank is moving to attract customers by highlighting loan limits and rate benefits. It allows loan transfers of up to 300 million won when using branches and up to 200 million won when using non-face-to-face channels, and offers a preferential rate of up to 0.3 percentage points for customers refinancing through non-face-to-face channels. It is also running an event through May 15 to provide cash support of up to 100,000 won from the first month’s interest to customers who transfer loans via the non-face-to-face loan transfer service.

Hana Bank also launched a new sole proprietor product, the Hana The SOHO unsecured loan, in line with the service. The product allows increased refinancing within a limit of up to 100 million won when additional funds are needed while repaying an existing loan, and features a fully non-face-to-face process from application to approval. It also plans to provide Hana Insurance’s "cyber financial crime compensation insurance" for free to customers who use the refinancing service.

In the financial sector, the view is that financial access will improve significantly because sole proprietors can compare rates and refinance through platforms without visiting financial institutions in person.

The market is also watching the possibility that, if competition intensifies, the refinancing service could spread beyond banks to secondary financial institutions such as savings banks. Some observers also say that if rate competition deepens, the landscape of the sole proprietor loan market itself could change.

An official at the Financial Services Commission said, "If interest-rate competition expands in the sole proprietor loan market, small merchants’ interest burden will fall," adding, "We plan to review ways to expand the participating sectors and the scope of products while monitoring how the service is operated."

A financial industry official said, "As this loan refinancing service begins by targeting only part of the sole proprietor financial market of about 1,000 trillion won, competition between banks and fintech firms to secure customers will become even more intense."