Toss's push into P2P lending sparks fair-competition debate

South Korea's peer-to-peer lending industry has urged regulators to establish institutional safeguards ensuring fair competition as Toss pursues entry into the online investment-linked finance sector. The industry's concern centers on the potential for conflicts of interest when a major financial platform simultaneously handles loan brokerage and product supply, raising fears that it could favor its own products. Toss rebuffed those concerns, saying current financial consumer protection law already bars it from arbitrarily promoting its own products.

The Online Investment-Linked Finance Association said Wednesday it shares the concerns raised by People Power Party lawmaker Choi Eun-seok and Democratic Party of Korea lawmaker Min Byeong-deok at the Financial Services Commission's national audit over large platforms entering the P2P lending market.

Toss operator Viva Republica has been pursuing entry into the P2P lending sector to expand personal credit loans for low- and mid-credit borrowers. The company is reportedly considering either registering directly as a P2P lender or establishing a separate subsidiary.

At the FSC national audit, lawmaker Choi said the P2P lending market had been built over the past 12 years through investment and innovation by financial startups, and called for scrutiny of potential "free-rider" problems posed by Toss's market entry. Lawmaker Min raised the possibility that a loan brokerage platform operating its own P2P lending business could give preferential exposure to its own products, manipulate recommendation algorithms in its favor, or exploit competitors' data. FSC Chairman Lee Eok-won said he would review the concerns raised.

The association said that because a large operator is entering a market pioneered by existing players, clear standards to guarantee fair competition are needed. It also said a larger operator does not automatically translate into greater credit supply for low- and mid-credit borrowers, and stressed the need to expand the actual supply base in a meaningful way.

"The issues raised at this national audit go beyond whether any particular company should be allowed to enter the market — they concern how to protect consumer choice and ensure market fairness in an environment where financial product brokerage and supply are combined," association chairman Hong Jae-moon said. "For financial innovation to produce sustainable results, principles that prevent conflicts of interest and guarantee fair competition must also be put in place."

Toss said it agrees on the need to prevent conflicts of interest, but stressed that existing law already addresses the issue. "The loan comparison and recommendation service is currently governed by financial consumer protection regulations that require products to be ranked based on conditions favorable to consumers, so we cannot arbitrarily give priority exposure to our own products simply because they are ours," a Toss official said.

Under the Financial Consumer Protection Act, online loan comparison platforms are required to rank products based on conditions favorable to consumers and must submit their algorithms for verification to prevent conflicts of interest. The rules are designed to stop platforms from recommending specific financial companies' products ahead of others for reasons unrelated to consumer benefit. Toss argued it would therefore be premature to conclude that operating both loan brokerage and product supply necessarily undermines fair competition.

Toss also addressed concerns that competitor information gathered through its loan brokerage operations could be used for its own business. "Financial institution data obtained through the loan brokerage process is also contractually restricted from being used arbitrarily in other businesses," a Toss official said, adding that the company is reviewing business structures and operating plans that would prevent conflicts of interest with its existing loan brokerage service.