Kim Byung-seok, left, and Shin Sang-yong, CEOs and co-founders of Frefins / Courtesy of Frefins

Coway's introduction of rentable water purifiers to the Korean market in 1998 transformed the consumption model, leading many consumers to choose rental services over purchasing products.

According to the KT Economic Management Research Institute, the domestic rental market grew to 40.1 trillion won ($29 billion) in 2020 and is expected to expand to 100 trillion won by next year.

The rental industry operates on a model where operators purchase goods upfront, lease them to customers and receive monthly rental payments, gradually recovering the costs over an extended period. Due to this, securing initial working capital is crucial.

For large companies, like Coway and Bodyfriend, this is not a significant issue as they have their own enterprise resource planning (ERP) solutions, which help them effectively accumulate relevant data needed for financial procurement.

However, many small and medium-sized rental businesses have not yet undergone a proper digital transformation and often manually record financial information and inventory assets on Excel spreadsheets.

As of 2020, these small and medium-sized firms with annual revenues of less than 100 billion won account for 77 percent of the market.

The problem arises when companies need to secure loans from financial institutions to purchase rental products, as lenders often do not trust Excel data, which they see as lacking credibility.

Startup Frefins focuses on this chronic issue in the promising rental market, offering a customized ERP system for small and medium-sized rental businesses.

Shin Sang-yong, CEO and co-founder of the company, named the firm's service "rental transformation (RX)" solution, inspired by the idea of digital transformation, or DX.

"We have two main types of clients. One is companies that want to enter the rental business, and the other is financial institutions looking to provide loans to these companies. Our RX solution helps both of them save costs," Shin said during a recent interview with The Korea Times.

For rental companies, which used to manage rental data manually in Excel, operational and management costs are significantly reduced with this digital solution.

When trying to secure loans, these companies had to approach each financial institution individually, but through the service, they can easily be matched with the right lender by utilizing the data generated, in addition to multiple financial partners of Frefins.

From a financial institution's perspective, meanwhile, there are various costs involved in customer acquisition, such as agency fees and monitoring costs, Shin points out.

"Our solution acts as a channel that enables lenders to offer loans to good companies across various industries as we provide real-time data on a company's operations and cash flow. This makes it easier to monitor loan assets and detect potential risk signals early."

Rental transformation, or RX, solution provided by Frefins / Courtesy of Frefins

Shin is widely recognized as the founder of ParkingCloud, which developed and operates iParking, the country's largest smart parking lot management system.

He founded ParkingCloud in 2011 when the concept of cloud computing was still relatively unknown in Korea. The company gained significant attention with its cloud-based parking management service, launched in 2020, creating a major shift in the market.

Shin sold ParkingCloud to NHN and SK E&S in November 2021 and co-founded Frefins the following year, alongside Kim Byung-seok, the former head of Hyundai Card and Hyundai Capital's financial division.

Shin mentioned that his experience at ParkingCloud served as a crucial foundation for starting Frefins, as the iParking solution also involves the rental business.

The solution automatically recognizes the number plate of a vehicle when it enters the parking lot, opens the barrier and records the parking time to calculate the fee. To help building owners who found the initial installation costs burdensome, the solution was offered for a rental fee of 365,000 won per month, which became very popular.

"Frefins was the first to introduce the concept of RX, but it was not an idea that came out of nowhere," Shin said. "In the past, I experienced how shifting from lump-sum purchases to rental models helped both the company grow and lighten the burden for customers. This made me realize that such a model is needed in all areas of purchasing."

By demonstrating the potential of its business, Frefins successfully secured 1.5 billion won in seed funding in January this year, and is currently in the process of raising 5 billion won in pre-series A funding.

The initial seed investment was used to strengthen research and development capabilities in order to customize the RX solution to be more customer-friendly. The upcoming investment will be used with the goal of growing the company.

"It has been almost six months since we officially launched the service, so we have completed the validation of our business model. In other words, the phase of spending on development is over, and we are now entering the phase of making money," Shin said. "We plan to use the upcoming investment to hire more sales staff and invest in marketing to help grow the company."

Shin highlighted that the concept is now shifting from ownership to usage across all sectors, with the range of rental items gradually expanding. He mentioned robotics and other equipment as prime examples, along with the smart retail sector.

"Many smart retail solutions such as self-service kiosks, which provide convenience to customers while reducing labor costs and other expenses, are emerging," he said. "However, the initial investment can be difficult for business owners since they often have to spend several months' worth of revenue upfront. This indicates the potential for the market to grow steadily."

While stable growth in the domestic market is the primary goal, Shin is also considering international expansion.

"Some of our clients are already expanding into overseas markets. As a result, we also need to accompany them, so our international growth is likely to accelerate," he said.

Related discussions are already underway.

SoundGraph, one of Frefins' clients, is currently working to supply its digital signage solution to large coffee chain stores in Japan. The solution converts menus or signboards, typically used in restaurants, cafes and other retail stores, into digital formats.

"The Japanese firm has requested equipment rentals. So, SoundGraph is collaborating with us for joint expansion into the Japanese market," Shin said.