Credit scoring needs a data sovereignty revolution

Kang Kyeong-hoon

The author is a professor of Business Administration at Dongguk University.

Kim Yong-beom, the presidential chief policy secretary, recently drew attention with a social media post highlighting problems in Korea’s credit evaluation system. His remarks touched on a longstanding issue in finance: Traditional credit scoring often disadvantages low- and middle-credit borrowers and younger consumers.

Most credit assessment systems rely heavily on past financial records. Critics argue that this approach structurally excludes many borrowers and weakens the market for mid-interest-rate loans, creating what some describe as a “donut economy” in which the middle tier is underserved.

Alternative credit scoring has emerged as a promising solution. Governments can expand policy guarantees or policy-based lending, but such measures inevitably increase fiscal burdens. Alternative credit assessment, which focuses on current economic activity and cash flow rather than past delinquencies, can help restore financial mobility while minimizing public spending.

The idea also aligns with the current administration’s push to promote AI. Data is often described as the oil of the AI era. Yet data differs from oil in an important respect. Oil is depleted when consumed, while data can be used repeatedly by multiple parties at the same time. Its value often grows when combined with other datasets.

This characteristic was highlighted in the 2020 paper “Nonrivalry and the Economics of Data” by Stanford University professors Charles Jones and Christopher Tonetti. The paper compares two ownership models.

When companies own data, they tend to restrict access to protect competitive advantages and economic rents. The result is fragmentation, reduced data utilization and lower social welfare.

When consumers own their data, however, they can share it with multiple institutions, including banks and fintech firms. Individuals benefit from broader financial opportunities while contributing to economic growth. At the same time, they can weigh privacy concerns against the benefits of sharing information and make their own decisions.

Efforts to establish data sovereignty around the world reflect these findings. The principle is straightforward: Individuals should have meaningful control over their personal data.

Examples already exist. In the United States, cash flow underwriting evaluates borrowers using real-time sales records and bank account activity rather than relying solely on credit scores or collateral. This allows small-business owners, young borrowers and financially vulnerable groups to demonstrate their creditworthiness through actual economic behavior.

Britain introduced open banking even earlier. Under the system, banks must, with customer consent, provide financial data to authorized third parties such as fintech companies. Information that was once locked inside banks can be used to obtain better products and services. Open banking is a practical example of data sovereignty in action.

Korea has moved quickly to adopt similar systems. The country launched open banking in 2019, introduced financial MyData services in 2022 and is now expanding MyData across industries. The government-led standardized application programming interface framework has produced high levels of security, stability and data quality. In theory, Korea has already built a strong foundation for alternative credit evaluation and inclusive finance.

Yet despite this infrastructure, alternative credit scoring and cash flow underwriting remain underdeveloped. The reason is that Korea’s open banking and MyData systems still focus largely on payment convenience and information retrieval rather than genuine data sovereignty.

Open banking has improved user experience through services such as simple transfers and integrated account dashboards. However, it has not fully achieved the broader goal of democratizing data and creating new forms of credit. Likewise, MyData policies have emphasized data movement and standardized displays while paying less attention to empowering consumers to exercise their data rights.

Another obstacle is data fragmentation. Korea’s MyData framework is divided among multiple ministries and legal regimes. Financial MyData falls under the Financial Services Commission, public sector MyData under the Ministry of the Interior and Safety and nonfinancial MyData under the Personal Information Protection Commission.

Different authentication methods, transmission rules and data standards make integration difficult. Regulatory barriers that have little connection to the interests of data owners continue to hinder data convergence.

The closed data practices of major platform companies worsen the problem. Financial institutions are required to share transaction records, while large technology, e-commerce and delivery platforms often keep valuable nonfinancial data within proprietary systems. Sales patterns, customer reviews and settlement records remain largely inaccessible.

This creates a serious imbalance. From the perspective of data owners, both financial and nonfinancial records reflect economic activity. Individuals should be able to direct that information to multiple service providers when they choose.

Data sovereignty requires more than declarations. It requires institutions and infrastructure that allow data to move securely across sectors. Korea should make it easier to connect MyData systems across finance, government and industry. Over the longer term, it should consider harmonizing separate legal frameworks governing credit information and personal information protection.

Policymakers should also encourage data transactions, expand public data access and promote greater sharing of platform-generated data. A standardized integrated data platform would reduce fragmentation and allow alternative data to be used more effectively in lending decisions.

Ultimately, stronger data sovereignty would help people who have been underserved by traditional credit systems while increasing overall economic welfare. If Korea hopes to build a more inclusive financial system, empowering individuals to control and utilize their own data must become a central policy priority.