By Park Jun-young WIRED Korea
SK Telecom believes it is capable of measuring the creditworthiness of small online vendors better than credit-rating agencies, as the mobile network carrier provides what it calls “seller score” service for its business partners.
On May 20, SK Telecom rolled out electronic-commerce factoring, a type of debt finance, in collaboration with its subsidiary, online mall 11th Street, and Hyundai Capital Services, a provider of consumer and self-employed financial services.
What SK Telecom does is evaluate the credit risk of people running stores on 11th Street, many of them being self-employed, when they apply for factoring service from Hyundai Capital.
The network carrier says it uses non-financial big data in predicting the ability of the vendors to pay back debt. The big data, it says, includes information on turnover, settlements, orders canceled, products returned, items sold and reviews written by buyers.
With the use of the seller score model, which SK Telecom says it developed using machine learning, the network carrier analyzes the creditworthiness of online vendors on 11th Street.
Once vendors pass the credit-rating test by SK Telecom, they can apply for factoring, a financial transaction in which they are set to sell their accounts receivable to Hyundai Capital Services at a discount. SK Telecom says that up to 40,000 vendors would benefit from the new service.
SK Telecom says many of those denied credit from institutional lenders will be eligible for factoring -- a remark indicating that it believes it is outperforming credit-rating agencies or financial institutions that are allowed to evaluate the creditworthiness of individuals, the self-employed people and small vendors for commercial purposes.
Many online vendors, it says, find it impossible to borrow from banks and other financial institutions because they lack collateral to offer, have low credit ratings, or both.
Only 35 percent of online vendors are in the top two tiers in a one-to-10 credit scale. Those with high ratings are often denied credit if they already have debt payments to make.
But SK Telecom says those with little collateral, low credit ratings or existing debts will be eligible for factoring from Hyundai Capital Services when they pass its seller score test, which it says is very much reliable.
The seller score, the mobile carrier says, is given an AUROC of 0.85, a score in the 0.8-0.9 range being considered “excellent.” One above 0.9 is considered “outstanding.”
AUROC, short for the area under the receiver operating characteristic curve, is a measure of how well a parameter can distinguish between two groups (here: creditworthy/not creditworthy).
SK Telecom says the big data-based seller score can be used as either a supplementary or an alternative indicator to a credit rating by an institutional credit evaluator or a financial institution.
The mobile carrier is planning to join hands with a variety of banking and financial institutions for the use of non-financial big data in launching new financial services for off-line vendors as well as online ones.
The seller score service will come in handy when coronavirus-hit small vendors have a greater need for credit evaluation than before. An increasing number of them are applying for loans from public lenders as well as private lenders to keep themselves afloat at a time of pandemic.
Credit-evaluation service has proven to be far from satisfactory, with small vendors, including owners of small shops and eateries, complaining about inconstancy in credit ratings by different institutions. That is understandable, given that there has been no uniform standard for credit evaluation.
The Financial Services Commission admitted credit ratings may differ by banks and that their ratings may differ from those from NICE Information Service, a key credit-rating agency for individuals and small vendors.
Kim Yoon, chief technology officer at SK Telecom, says, “Small vendors suffering from the COVID-19 pandemic are benefiting from our innovative financial service, which is significant. We will continue to launch new innovative financial services in cooperation with financial companies and e-commerce companies.”
Park Jun-young’s Korean-language article is found at "SK텔레콤, 비금융 빅데이터 활용해 금융 혁신 지원".
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