[THE INVESTOR] The numbers say it all. Korea’s accumulated peer-to-peer lending reached 1.47 trillion won (US$1.31 billion) by end-September as more and more borrowers are embracing the new, more convenient platforms for connecting with investors.
Considering that the figure accounts for only 60 members of the Korea P2P Finance Association among the industry estimates of 130 lenders, the market is actually bigger. It also reflects a sharp upward trend; back in June 2016, when the association first began compiling data, accumulated loans granted by 22 members stood at just 152 billion won.
“(P2P lenders) are competing for a bigger piece of the fast-growing market,” said Joey Kim, founder and CEO of PeopleFund in a recent interview with The Investor. “Competition is important and necessary, but more than that, the players have to learn to cooperate and contribute to sound industry growth trends.”
PeopleFund Founder and CEO Joey Kim
The market is indeed growing, not just due to the demand for new banking platforms, but also because liquidity is flowing in the market due to quantitative easing. Against this background, Kim founded PeopleFund in March 2015. Since then, the bank has been on a roll. On Nov. 1, its accumulated loans stood at 121 billion won, compared to 19 billion won in February. It’s the No. 3 player in the local industry.
Kim is now strategizing on how to launch a “1 trillion-won” hit item.
PeopleFund introduced its first loan product in June 2016 after spending more than a year on laying the groundwork. Over a span of 16 months, Kim and his team met their counterparts at every single Korean bank. They also successfully attained approval from Korea’s financial watchdog.
The time spent on research and development, so to speak, can be an excruciatingly long period for startups, which are usually in a make-or-break situation from the start. Kim, however, said, it was all worthwhile.
“That time was spent building credibility. Within 18 months, we became No. 3 among 130 members, and I think this proves that partnering with a bank was a good strategy,” said Kim.
PeopleFund’s local partner is Jeonbuk Bank, a North Jeolla Province-based local bank which is trying to expand its presence beyond its local base. Their partnership created the first bank-P2P lender partnership model in Korea.
The advantage is that PeopleFund can operate within the official, regulatory framework, which gives it more options to run different schemes, such as derivative-linked securities. Most other rivals are currently focusing on project financing for real estate projects and individual loans.
Kim predicts that in the near future, Korea is likely to follow in the steps of the US rather than China, in terms of P2P lending regulations. The US has been regulating the industry from the start, while China’s fintech industry has grown without much regulation, until recently.
“Korea is very conservative when it comes to finance, and the sector is full of regulations, so I assume Korea will have to follow the US, rather than China,” said Kim.
The following are excerpts from the interview.
The Investor: How would you define PeopleFund’s vision in one statement?
Joey Kim: I would say, alternative financing for everyone.
TI: Can you elaborate?
Kim: There are many alternative investments such as mezzanine finance or airlines but they are only available for those who have a lot of money. If you have less than 20 billion won, you can’t join the game. What we’re offering is mini versions of them so that users can make an investment with as little as 100,000 won.
TI: Can you please tell us more about yourself and the team?
Kim: I have experience in finance and consulting companies. I worked for Macquarie Securities Korea for a year and Bain & Co. for five years. After that I joined Softbank Ventures Korea, looking for promising ventures and startups. To get first-hand experience of startups, I was involved with many of them, and some failed.
We have grown into a team of 43 with five in the core team. Our CSO Lee Soo-hwan used to work at Boston Consulting and Bain & Co. as a business consultant for about 10 years.
CTO Kang Dae-sung was one of the early members of Navigation app Kimgisa, which was later sold to Kakao.
COO Kang Myeong-kwan joined us at the end of last year. He was the CSO of ST UNITAS Corp., an edu tech.
Our CFO Kang Nam-seok is from Samil PricewaterhouseCoopers and was in charge of the IPO for Futurestream Networks.
TI: How much funding has PeopleFund raised so far?
Kim: We have raised a total of 6.4 billion won including seed investment of 1.5 billion won. In June, we closed 4.4 billion won in series A funding which includes investments from 500Startups, Wooshin Venture Investment Corp., D3 and Dayli Financial Group. Series B is scheduled for later this year.
TI: You must have observed many companies as you were involved with many startups -- some successful and some not. So why P2P?
Kim: At the end of 2010, while working for SoftBank Ventures Korea, I met a core member of then-nascent Lending Club -- who is now a mentor for PeopleFund. The business model seemed great so I wanted to invest in a similar business model in Korea. To my disappointment, I couldn’t find any and I was told that it would be difficult due to red tape. Fast forward to 2014, I checked how Lending Club was doing and I was very surprised to see that the company went public with a US$1 billion IPO. That’s when I thought I have to do this business.
TI: You recruited many talents from financial institutions. How did you attract them?
Kim: Recently we recruited six professionals from prominent financial institutions like Citibank Korea, Korea Development Bank and Deutsche Bank.
When looking for right persons, it is important to notice what motivates them. If that is sitting in the drivers seat and making changes, that fits our corporate culture. I think people in the financial sector are also impressed by our growth and prospects.
TI: How do you distinguish yourself from competitors?
Kim: The biggest difference is that we’re within the regulatory framework. We are not registered as a moneylender like other P2P lenders. All the funds go through Jeonbuk Bank. There were advantages in being a part of the system, such as easier access to institutional funding and loan securitization. It helps P2P products get recognized as legit financial products.
TI: Fintech has an innovative image. By associating with an existing bank, aren’t you risking that image?
Kim: There are 130 P2P lending companies in Korea and we have become No. 3. in just 18 months. I think partnering with an existing bank was key to building credibility. In addition, Jeonbuk Bank is a local bank with a long history so its system used to be old and outdated. But it upgraded its system in 2010 and is one of the most advanced in the local banking industry. This system is also being shared by Kakao Bank, which is Korea’s second internet-only bank.
TI: What would be the biggest risk that you are facing and how do you plan to deal with it?
Kim: As an emerging industry, how regulations shape up is one of the biggest risks. This puts many players in the same boat. There are many competitors but we have to cooperate. At the moment, I would say customer perception is our biggest enemy. According to data from the Bank of Korea, there are some 400 trillion won floating funds. I want those floating funds to find good investment destinations.
By Park Ga-young (email@example.com)