RBI data rules likely to help  only  a  few  fintechs

So far, fintech companies have been using alternative data for accessing credit profile of customers

Gopika Gopakumar
Updated11 Jan 2022
Some data protection woes may still be left unaddressed, said analysts
Some data protection woes may still be left unaddressed, said analysts(Photo: Mint)

The Reserve Bank of India’s decision to allow financial technology companies to access data from credit information bureaus is set to bring a highly unregulated segment within the regulatory purview. But experts said the new rules are likely to benefit a few companies, with concerns on data protection still unaddressed.

Until now, only regulated entities such as credit institutions and specified users like telecom companies, insurance providers, rating agencies and registered brokers had access to such data. Fintech firms partnered with banks and assisted in processing customer-related information without having any access to such information. That said, some companies even allegedly accessed information by acting as a conduit for customers to access their credit reports.

RBI’s latest rule suggests any company incorporated in India and controlled by Indians can now be classified as a specified user. These entities should have diversified holding and not less than three years of experience to access data. This would mean that fintech companies will be allowed to classify as specified users to access information in a regulated manner as per the Act.

Experts said this wider access to credit data of millions of Indians would help fintech companies provide tailor-made products to customers. “These guidelines will help prime customers get pre-approved offers with low interest rates and less documentation. The second big win is for underserved customers like low-score customers, who you can help repay debt and improve their score. Getting credit products designed for these customers, that’s a benefit. Third, it will also ensure new customers access to credit. I see product innovation and process efficiencies going forward,” said Radhika Binani, chief product officer, Paisa Bazaar.

So far, fintech companies have been using alternative data for accessing credit profiles of customers. This includes social media footprint and bills from utilities like telephone and electricity to judge creditworthiness. However, access to data from credit bureaus will help the entire ecosystem make better credit decisions, fintech companies said. “Many fintechs have partnerships with or funding from banks for origination of credit-based accounts. With access to data for fintechs during origination, banks will be able to take more informed decisions on underwriting the credit,” said Rajesh Mirjankar, managing director and CEO, Kiya.ai, a fintech digital solutions provider.

That said, the current rules may benefit only a few as several fintech firms engaged in customer information processing do not meet RBI’s eligibility criteria. “Given some of the eligibility criteria outlined for companies, most of them may not be eligible to take benefit of it. The majority of the fintechs are majorly foreign VC/PE funded and may not meet the ownership condition. The intent may be to allow entities to observe local data governance and compliance, but the same can be achieved through operating model conditions rather than through ownership conditions,” said Vivek Belgavi, partner, PwC India.

Experts also said fintech firms being specified users do not have to seek customer consent explicitly before accessing their data, like banks and other credit institutions where consent is sought every time a loan is taken. The new regulations mandate that these fintech companies submit a CISA auditor certification to ensure customer data protection. However, experts warn data misuse remains a concern.

“If there is no requirement for an explicit consumer consent for specified users and monitoring on the purpose of use by the specified user, it could lead to privacy and misuse concerns for consumers. Such specified users, fintechs or companies, may not be directly regulated. So how would one ensure consumer data stays protected,” said Parijat Garg, a digital lending consultant.

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