Is Alternative Credit Evaluation the Key to Identifying Thin Filers? Banks Remain Cautious on Expanding Supply

No Legal Definition or Usage Guidelines
Each Bank Implements Its Own Approach
Alternative Credit Evaluation Expected as Key Tool for Identifying Thin Filers
Difficult to Replace Traditional Assessment of Credit Risk and Repayment Ability
Greater Sophistication May Filter Out High-Risk Borrowers, Limiting Loan Supply

Alternative credit evaluation is drawing attention as a means to identify 'thin filers'—individuals with insufficient financial history. This comes after Kim Yongbeom, policy chief at the Presidential Office, pointed out the issue of financial market exclusion for mid- and low-credit individuals and emphasized the need to reform the current credit evaluation system, which relies heavily on financial history.

Within the banking sector, there is broad consensus that utilizing non-financial data to identify borrowers with limited financial history can be a rational approach to enhancing inclusive finance. However, concerns over credit risk mean there are significant limitations to its full-scale expansion. Even with alternative credit evaluation, there may be restrictions on substantially increasing lending to mid- and low-credit individuals.

As of May 20, 2026, according to financial authorities, there is currently no legal definition or specific usage guideline for alternative credit evaluation. In January, financial regulators launched a task force to reform the credit evaluation system, aiming for the practical expansion of alternative credit evaluation, and are currently reviewing its direction. Authorities consider alternative credit evaluation one of the key tools for identifying thin filers and expanding inclusive finance. However, due to the absence of institutional standards, each bank is implementing and operating its own alternative credit evaluation models in different ways.

Alternative credit evaluation is a system that assesses a borrower's repayment ability using non-financial data, such as mobile phone bills, utility payments, rent, tax payment history, spending patterns, and platform activity information. Whereas traditional credit evaluation primarily relies on past financial records like loan, delinquency, and credit card usage history, alternative credit evaluation seeks to additionally assess repayment capacity through everyday payment, spending, and transaction data. The intention is to reflect the borrower’s real-life cash flow and repayment behavior, which may not be evident from financial records alone, in the evaluation process.

Internet Banks Leading with Kakao Bank Score, TSS, and Equal

Internet-only banks have been the most proactive in adopting and utilizing alternative credit evaluation. These banks have built their own alternative evaluation models based on various non-financial data and have used them as key indicators in loan screening. In addition to traditional financial information, they incorporate data such as remittance and payment history on their platforms, mobile phone bill payment information, and spending patterns to identify borrowers with the capacity to repay. In essence, they have evaluated borrowers' repayment ability by integrating traditional and alternative credit evaluation models.

Kakao Bank developed the 'Kakao Bank Score' using pseudonymous combined data from external organizations such as Lotte Members. Since introducing this model, Kakao Bank has provided additional loans to mid- and low-credit customers who would have been rejected under the previous model. Toss Bank is reevaluating mid- and low-credit borrowers through its self-developed model, TSS. K Bank has adopted the 'Equal' model, developed by a telecommunications alternative evaluation company jointly established by the three major telecom operators, and uses it in loan screening. This approach supplements the assessment of repayment ability using telecom-based alternative data, such as mobile phone bill payment history and data usage.

The cases of internet-only banks demonstrate that alternative credit evaluation can be positively used to identify thin filers. However, industry experts point out that, paradoxically, the sophistication and activation of alternative credit evaluation models do not necessarily lead to a significant expansion of loans for mid- and low-credit borrowers. Enhancing alternative credit evaluation means increasing the scope of data available for banks to combine and improving risk differentiation. The more sophisticated the evaluation model becomes, the more it can function as a screening tool to identify the borrowers' potential risk of default in greater detail.

An internet bank industry official stated, "As the evaluation model becomes more sophisticated, the results will not necessarily be positive. For example, even if a borrower has consistently paid their utility bills and rent and has no loan delinquencies, there could be risk factors identified if their mobile phone bill or tax payment history is irregular, or if their mobile payment patterns reveal potential issues." The official added, "In such cases, alternative credit evaluation may identify the borrower as high-risk, making the bank hesitate to approve the loan."

The World Bank also explained in its 2024 report, "Use of Alternative Data in Credit Scoring: Credit Risk and Evaluation," that borrowers with no issues in loan repayment history could still be denied loans if instability is detected in non-financial data such as utility or tax payment patterns. The industry official further noted, "So far, banks have used alternative models restrictively for identifying creditworthy borrowers, but activating these models does not necessarily mean that the number of mid- and low-credit borrowers identified will increase substantially."

There is also the option of restricting alternative credit evaluation models to only incorporate positive information that aids in loan approval. However, from the banks' perspective, this would not significantly enhance the model's ability to differentiate credit risk, thus reducing their incentive to actively use it. At the kickoff meeting for the Financial Services Commission’s credit evaluation system reform task force in January, a participating company stated, "There is a lack of practical policy and business incentives for financial institutions to actively adopt alternative credit evaluation. To strengthen the ability to predict defaults, financial institutions must be able to use both positive and negative alternative information for more sophisticated credit evaluation."

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Commercial Banks Also Point Out Long-Term Limitations 

Commercial banks are also applying alternative credit evaluation only on a limited basis to certain products for borrowers with insufficient financial history. They target borrower groups such as young adults, homemakers, and new entrants to the workforce—those who have difficulty using traditional credit loan products—and use alternative evaluation specifically for loan products applied for by these groups. For instance, Woori Bank's WON Living Expense Loan applies the alternative evaluation model only to non-salaried workers, identifying borrowers within this group. Within the targeted supply of 100 billion won, the structure seeks to identify borrowers who, despite lacking sufficient financial history, are considered to have the ability to repay loans.

Commercial banks also agree that there are clear limitations in substantially expanding loans to thin filers through alternative credit evaluation models. Their judgment is that, even if the models become more sophisticated, risks and the potential for defaults cannot be fully eliminated. One senior executive in charge of lending at a commercial bank stated, "If regulators set targets and push for them, of course we will increase related products. However, in the long term, banks cannot continue to sharply expand lending to borrowers whose regular income cannot be verified, simply on the assumption that they have the capacity to repay." He added, "If a borrower is deemed to have extremely low default risk, it is likely they are either cash-rich or a young person about to start or who has just started a job. The former does not align with the purpose of inclusive finance, and the latter group is inevitably small in number."

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