SK Telecom using non-financial data for credit scores

SK Telecom and Hyundai Capital are releasing a loan product for online sellers that determines credit scores using online revenue, user comments and item return rates.

At the moment, only online sellers doing business on 11st, SK Telecom’s e-commerce subsidiary, can apply. Hyundai Capital will approve loans up to 30 million won ($24,500), regardless of existing debts.

Hyundai Capital will be the lender. However, SK Telecom is responsible for a critical part of this loan process — unusual for a telecommunications service provider — that is, credit analysis.

When financial institutions review loan applications, they request government-approved agencies to assign credit scores to the borrower. Traditionally, credit rating agencies screen financial factors, income, assets and existing debt, to make the decision.

SK Telecom, on the other hand, will also consider the seller’s performance on the 11st e-commerce platform — such as sales, what kind of products they sell, how many of the products were returned, product reviews from customers and how the seller responded to customer feedback.

This data will be analyzed using SK Telecom's credit rating model. Financial information that traditional credit agencies use for calculation will also be considered, but SK Telecom's rating “will have low correlation with credit ratings derived solely based on financial information,” the company said in a statement.

Normally, SK Telecom would not be allowed to assign credit scores as it is not a government-approved agency. But the practice was made possible in October last year when the telecommunications company received approval from the Financial Services Commission (FSC) for a regulatory sandbox.

SK Telecom was granted approval to engage in the business and test whether employing non-financial information in credit ratings can actually expand loan opportunities for small-sized businesses. Under traditional standards, they are frequently refused or have to pay higher interest rates.

“As most online sellers on e-commerce are small businesses with small revenue, lack of collateral and low credit ratings, it’s realistically difficult for them to raise funds from traditional institutions,” SK Telecom said in the statement.“The proportion of e-commerce sellers that receive credit scores of one or two is merely 35 percent. Even if you do obtain high ratings, it’s difficult to borrow more if you’re already indebted to another institution.”

Korea’s credit rating agencies assign credit scores between one and 10, with 10 being the worst.

Interest rates will differ according to the seller, but SK Telecom said they will be low compared to existing loan products offered to e-commerce business operators. Traditional credit rating agencies receive commissions from financial institutions for assessing borrowers, but SK Telecom said Tuesday its exact revenue model is not yet decided in detail.

The telecommunications company has also signed contracts with Hyundai Card and Woori Bank last year to introduce similar loan products. For now, SK is making its first attempt as a credit rating agency alongside its subsidiary 11st, but the company plans to work with other e-commerce platforms.

“Starting from this product, we’re going to develop services for sellers of other e-commerce platforms and brick-and-mortar businesses,” SK said in a statement.

BY SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]