"Automating Rate Cuts with AI"... Fintech Firms Race to Dominate Interest Rate Reduction Rights

Automatically Applying When Credit Improves
Expected to Ease Financing Costs for Low-Income and Vulnerable Groups
Fintechs Highlight Strength in "Data Management"

Artificial intelligence (AI) services that detect changes in borrowers' credit status and automate the interest rate reduction process are expected to become more widespread. As major MyData providers prepare to roll out proxy services for exercising the right to request interest rate reductions, fintech companies in particular are competing to attract customers in order to secure platform market share.

According to the financial sector on February 12, fintech companies such as Naver Pay, Banksalad, Kakao Pay, and Toss, as well as banks including Shinhan Bank and NH Nonghyup Bank, will begin offering proxy services for the right to request interest rate reductions starting on February 26.

The right to request an interest rate reduction is a system that allows loan customers to ask financial institutions to lower their interest rates when their credit score improves due to higher income, loan repayment, and similar factors. However, because customers have so far had to determine the timing of their credit improvement on their own and apply directly, the system has been criticized for low accessibility and for failing to fully deliver its intended benefits.

To overcome these limitations, the new proxy service for the right to request interest rate reductions uses AI to track changes in an individual's credit status and automatically submits a request at the optimal time to lower the interest rate. If a request for an interest rate reduction is rejected, the service analyzes the reasons for non-approval and provides concrete guidance on how to improve credit in order to increase the approval probability for the next application. Even users who do not currently have any loans can sign up for the service and receive credit management based on changes in their credit status once they take out a loan in the future.

This service is regarded as part of the government's state agenda to "strengthen inclusive finance for low-income and vulnerable groups." In September last year, the Financial Services Commission announced that revitalizing the system for exercising the right to request interest rate reductions, in order to ease financing costs for small business owners, could generate cost savings of about 168.0 billion won. Subsequently, in December, it newly designated the MyData-based proxy service for the right to request interest rate reductions as an innovative financial service.

Amid these changes, banks and fintech companies are each introducing related services, and fintech firms in particular are actively seeking to attract customers by highlighting their data analytics capabilities as a key competitive edge.

Kakao Pay allows users to select a reason for their first application only once, after which the system automatically chooses the most appropriate reason based on subsequent changes in their credit status, while also strengthening post-management features so that users can view the application status and results for each loan at a glance. Banksalad plans to first run its "raise your credit score" service before executing the right to request an interest rate reduction, in order to maximize the probability that consumers will be able to lower their interest rates. Banksalad's credit score enhancement service submits information from MyData that can be meaningfully used in credit evaluation to credit rating agencies to raise users' credit scores.

An industry official said, "Individuals will be able to reduce the burden of having to understand the system themselves and judge the timing by using automatic applications for the right to request interest rate reductions," adding, "Each user can use this proxy service with only one financial company. Each fintech platform will aim to lock in customers by securing early subscribers and then expand into other services."