For the loan: Lenders like KakaoBank turn to social media data for credit scoring

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Are you a recluse online? Would a Google search on yourself pull up zero results? Then you might be less likely than your more digitally outgoing friends to get a loan.

Everything from what you post online, what you read on Kindle, the movies you watch, where you shop, to who you’re friends with – all now have a role to play in whether you’d get a loan.

Traditionally, banks would evaluate a loan applicant by looking at criteria like their credit score, income tax filings, or pay slips.

But there are millions of underserved customers today who cannot produce such documents. These include university students, fresh graduates entering the workforce, gig economy workers, and small-business owners.

So to broaden financial inclusion, lenders have started using AI and data analytics to comb through hundreds of extraneous data points to give them a better idea of their customers.

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At Mumbai-based fintech firm Cashe, for example, loans are disbursed on parameters such as the customer’s number of Facebook friends, smartphone model, mobile app downloads, and public interactions on social media.

The firm tells Tech in Asia that when it comes to mobile app downloads, more weight is given to apps that help an individual with their career, financial planning, exercise routines, and cooking – than to gaming apps.

Other fintech startups like Singapore-based BizBaz, Pune-based LoanTap, and Chennai-based M2P Fintech look at a mix of traditional financials and alternative data points – such as health records, lifestyle practices, and social media engagement.

And it’s not just fintech companies but also banks that are using such non-traditional data.

UOB Thailand uses alternative data to determine whether employees who are new to the workforce should get credit cards, it tells Tech in Asia, though the bank didn’t disclose what metrics it uses in judging creditworthiness.

On the other hand, its South Korean counterpart KakaoBank uses a wide range of metrics from how often a borrower is online, to their lifestyle habits, mobile phone battery recharge history, fund transfers, etc.

As of the first quarter of 2023, Kakao had 21.2 million users, or 40% of South Korea’s population. In a recent interview with Tech in Asia, the bank credits this growth to its constant innovation, including in the realm of credit scoring.

“We’ve come up with our own credit-scoring system called ‘KakaoBank Score.’ It uses alternative information such as shopping history, book purchases, etc.,” a representative of the bank says.

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