The government‘s plan to bring loan products under one platform by October to help consumers easily compare the options available is facing headwinds from traditional banks and their tech rivals in the wake of their already intensifying competition to gain the upper hand in digital financing.

The “mobile-based loan exchange platform” pushed by the policymaking Financial Services Commission since January is a mobile application, whereby debtors can browse the number of available loan products and easily transfer their current credit loans to those with a lower interest rate, without having to visit offline bank branches or other financial institutions. 

Operated by Big Tech and fintech firms in cooperation with the Korea Financial Telecommunications and Clearings Institute -- a non-profit organization under the FSC, which manages several inter-bank payment systems -- the new contactless service is expected to increase consumers’ access to financial services, the FSC said in a statement.

Despite good intentions, the government faces a bumpy road ahead as traditional banks expressed skepticism over the project, citing high commission fees that they might have to pay to tech players for participating in the platform, according to industry sources.

Also, banks are reluctant to share customer information with Big Tech and fintech firms, which is necessary to manage the loan exchange program, with concerns over a possible leak of their trade secrets or confidential internal information, they added. 

The FSC responded to local banks’ opposition by saying “banks will play a significant role in implementing the platform. We will consider the banking sector‘s opinions when selecting tech firms to operate the platform.”

“Banks and Big Tech companies showed power struggle when the FSC tried to launch the current open banking system in 2019, but the system was eventually settled well in the market. Both sides should review the forthcoming loan exchange platform from a consumer standpoint.”

Currently, the nation’s five major lenders -- Shinhan, KB Kookmin, Hana, Woori and NH NongHyup -- are not considering to join the government-back loan exchange platform. In the meantime, the Korea Federation of Banks, a representative body of 60 banks operating in Korea, is planning to develop a separate loan exchange platform as a counter attack against Big Tech and fintech firms. 

A number of internet-only lenders, including KakaoBank and Toss Bank, however, decided not to join hands with the KFB, fueling the ongoing feud over the loan exchange platform.

As traditional banks and their tech rivals are pushing for separate loan replacement mobile services, speculations are rising that the government could delay the launch of the planned platform slated for October.

“Considering mounting concerns from banks regarding the loan exchange platform scheme, the financial authorities should not push for it unilaterally. They need to come up with specific measures to ease the burden on banks, including commission fees, in order to successfully achieve their initial goal,” said Kim Sang-bong, an economics professor at Hansung University.

By Choi Jae-hee (cjh@heraldcorp.com)