Buying books to reduce loan interest rates, increasing limits with automatic gas bill payments... Financial sector changing credit evaluations

Eugene Savings Bank Launches 'Alternative Personal Credit Evaluation Service'
Introducing Non-Financial Information to Improve Rates and Limits for Medium and Low Credit Borrowers
Major Companies Also Say "Let's Improve Credit Evaluation Models to Capture Medium Credit Borrowers"

The financial sector is accelerating the advancement of credit scoring models (CSS) by utilizing 'non-financial information,' which previously did not affect loan interest rates and limits, in credit evaluations. This is interpreted as a strategy to attract thin-file borrowers by offering them attractive interest rates and limits.

According to the industry on the 27th, Eugene Savings Bank recently launched the 'Alternative Personal Credit Evaluation Service,' the first of its kind in the financial sector. The core of this service is to consider automatic payment information such as telecommunications and gas bills alongside financial indicators like credit cards and insurance. Eugene Savings Bank had previously collected data on real estate, online and offline commerce, and micro-payment information, recognizing that past CSS had difficulties in accurate credit evaluation.

CSS is a model used by the financial sector to assess the credit status of loan applicants. Traditional CSS focuses primarily on past financial transaction history. Those with little financial transaction experience, such as those who have never used loans or credit cards, receive credit scores lower than their actual income and assets. Housewives, university students, individual business owners, and delivery riders typically fall into the thin-file borrower category.

The Alternative Personal Credit Evaluation Service was developed by the Korea Financial Telecommunications & Clearings Institute (KFTC) in collaboration with the credit rating agency Korea Credit Bureau (KCB) to address these issues. The two institutions have conducted utility analyses using automatic account transfer information. The KFTC handles about 1.7 billion related data entries annually. According to the analysis, 63% of thin-file borrowers and 70% of medium-credit customers (credit scores between 530 and 890) received better credit scores through the alternative personal credit evaluation. For the secondary financial sector, which has many medium- and low-credit customers, utilizing alternative credit evaluation can provide an advantage in the competition to secure loan customers.

The KFTC plans to expand the alternative credit evaluation service to about 20 financial companies in the first half of this year, starting with Eugene Savings Bank. Kim Hak-soo, president of the KFTC, emphasized, "We expect this service to act as a catalyst for the development of alternative credit evaluation models."

Major Companies Also Aim to Capture Medium-Credit Customers Through CSS Advancement

Not only the secondary financial sector but also major commercial banks are moving to improve CSS models to avoid losing thin-file and medium-credit customers. KB Kookmin Bank, after creating a CSS specialized for small business owners last year, selected 'CSS development' as a key project this year. Lee Jae-geun, the new president of KB Kookmin Bank, stressed, "Refining CSS to discover customers in grades 7 and 8 will be a factor that differentiates performance among banks going forward."

Woori Bank has been incorporating BC Card merchant information into credit evaluations using machine learning since the second half of last year. This was because even small business owners with excellent sales and business potential found it difficult to obtain loans due to few business days or lack of financial institution transactions. Products launched with the improved CSS include 'Woori O Click Loan' and 'Woori Boss e-Pyeonhan Account Loan.'

Internet-only banks, which started CSS improvements earlier than commercial banks, continue to refine their evaluation models. KakaoBank announced last month that it would enhance CSS by analyzing book purchase tendencies through a business partnership with the Kyobo Group (Life Insurance, Bookstore, Securities). This is done by receiving pseudonymized data with customer consent and examining the correlation between book purchase patterns and customer credit. Previously, some U.S. financial companies supplemented their CSS by obtaining book purchase histories from the e-commerce company Amazon.

The reason major companies are focusing on CSS improvements is due to the financial authorities' total volume regulation policy and the activation policy for mid-interest loans. The financial authorities have threatened to strictly manage household debt again this year but stated that mid- and low-credit borrowers' mid-interest loans would be excluded from total volume management or given incentives. For banks, improving CSS is essential to offer lower interest rates and higher limits to secure medium- and low-credit customers.

On the 25th, Financial Services Commission Chairman Ko Seung-beom said, "We will continuously guide the soft landing of household debt, which is identified as the biggest risk factor for our economy," and added, "We will do our utmost for financial stability." The household debt growth rate this year is planned to be kept at 4-5%, lower than last year's 5-6%. At the same time, last month he mentioned, "We may consider giving incentives to mid- and low-credit loans and policy financial products for low-income earners and excluding them from total volume management limits."

This content was produced with the assistance of AI translation services.