"Existing Credit Rating Models Fail to Cover Medium-Low Credit Borrowers... Why the 4th Industrial Bank Is Needed" [Issue Interview]

Interview with Kim Sungjun, CEO of Lendit, Member of the UBank Consortium
"Realizing True 'Inclusive Finance' with Alternative Data and AI Technology"

▲On the 11th, Kim Seong-jun, CEO, is being interviewed by an Asia Economy reporter at the Lendit headquarters located in Yeouido Post Tower. Photo by Lendit

"True inclusive finance can be realized through more sophisticated data and advanced technology."

On the 11th, at the Lendit headquarters located in Yeouido Post Tower, CEO Kim Sung-jun revealed the internet bank blueprint envisioned by the UBank Consortium. Among the six consortia vying to become the 4th internet bank, the UBank Consortium boasts the largest number of participants, including fintech company Lendit, which intermediates peer-to-peer (P2P) loans, Hyundai Marine & Fire Insurance, Travelwallet, Lunit, SamzzumSam, Hyundai Department Store, Naver Cloud, and IBK Industrial Bank of Korea.

CEO Kim dropped out of Stanford Graduate School to start his business. After starting a business in the U.S. and looking into loans to cover operating costs, he recognized the need for mid-interest loans in the domestic loan market. He then wrapped up his previous business and returned to Korea to found what is now Lendit.

Kim said, "In Korea, if first-tier financial institutions offer loans at interest rates of 4-5%, second-tier financial institutions charge rates in the high teens, creating a 'loan cliff' between first- and second-tier finance." He added, "Inspired by this, we started P2P lending and from the beginning had the direction that we would eventually become an internet bank."

Such cases are easily found in the U.S. LendingClub, which started as a P2P company and went public on NASDAQ in 2014, is a representative example. Kim said, "Starting with P2P, once a lot of data accumulates, licenses are obtained, and deposit functions are added, expansion follows. I have witnessed several cases where economies of scale made it possible to evolve into a bank."

He continued, "In fact, at the early stages of Lendit's founding, when internet banks were first introduced, we were invited to join a consortium, but at that time, we declined, judging that our role would be limited. However, now we have accumulated sufficient data, and we are confident that we can differentiate ourselves from existing internet banks and play a unique role, which is why we decided to enter the 4th internet bank competition."

Regarding criticism questioning the necessity of a 4th internet bank if it cannot differentiate itself from existing banks, Kim pointed to 'alternative data' as the key differentiator. He explained, "Existing financial companies use credit evaluation models from credit rating agencies like NICE when assessing the creditworthiness of middle- and low-credit borrowers. However, the information they can confirm is limited to whether loans were taken in the past and whether repayments were made well." This is also why internet banks are criticized for not breaking away from the traditional financial system. Kim believes that to practice inclusive finance for middle- and low-credit borrowers, creditworthiness must be analyzed using different data that others cannot easily access.

▲On the 11th, Kim Seong-jun, CEO, is being interviewed by an Asia Economy reporter at Lendit headquarters located in Yeouido Post Tower. Photo by Lendit

Kim said, "For example, one of our consortium members, Hyundai Marine & Fire Insurance, can provide health information from the insurer to execute loans." Although both are small business owners, typically, a 40-year-old small business owner is given a higher loan limit than a 60-year-old, assuming a longer life cycle. However, if health data from the insurer shows that the 40-year-old has a serious illness while the 60-year-old has only common chronic diseases, the 60-year-old may actually receive a higher loan limit.

He added, "The more such data we have, the more precise and meaningful data extraction becomes possible, which is why we expanded consortium members across various fields. When selecting consortium members, we focus on whether they have a strong will to build alternative data pipelines."

The UBank Consortium targets small business owners, seniors, and foreigners. Given that demographic changes due to low birth rates and aging have become a major social issue, these groups are expected to become the main pillars of our economy in the future.

Kim said, "The primary retirement age of Korea's economically active population is 49, which is surprisingly early. After that, they have about 35 years of life cycle remaining, during which they eventually become small business owners." More than two-thirds of small business owners in Korea are over 50, and seniors aged 65 and older already make up one-fifth of the total population. Additionally, as low birth rates worsen, foreigners are filling labor gaps, with about 2.5 million foreigners currently economically active in Korea, a number expected to increase.

Kim pointed out, "In the past six months, foreigners residing in Korea have opened over one million accounts at commercial banks. Foreigners, seniors, and small business owners are no longer minorities in our society, yet credit evaluation models fail to accurately assess them." He expressed confidence, saying, "I believe that true inclusive finance for groups underserved by the traditional financial system is possible through the use of alternative data and the integration of artificial intelligence (AI) technology."

He also sees data and AI utilization as solutions to the problem of declining financial accessibility for seniors, as commercial banks reduce branches despite record profits.

Kim said, "Naver Cloud recently joined the UBank Consortium for this reason. Seniors and foreigners visit banks because they find it difficult to use financial apps, but with AI technology, seniors can conduct financial transactions using only voice, and foreigners who do not speak Korean can transact in their native languages." Naver Cloud is recognized as the leading AI research and development center in Korea.

Finally, Kim said, "Even five years from now, the financial environment will be distinctly different. Metrics like MAU (Monthly Active Users) are already outdated technology standards. With more extensive data and advanced AI technology, we will realize truly meaningful inclusive finance."