A new data war is brewing. High-street banks are coming together to oppose Fintech firms fishing out information on millions of bank customers.
Over a conference call last week, around eight private lenders, including some of the largest ones, decided to draw the Reserve Bank of India’s (RBI) attention to the risks of unbridled flow of customer data from credit information companies to Fintech firms and financial services startups.
While Fintech companies position themselves as customer- friendly marketplaces that enable retail borrowers get the best deal, banks fear that freely accessing customer information could compromise data security, raise privacy concerns as well as pave the way for many Fintech intermediaries to indulge in sharp practices.
Officials of ICICI, HDFC Bank, Axis, Standard Chartered, Citi, Yes Bank, RBL and IndusInd participated in the call.
“We would first meet the credit bureaus, ask them whether it’s legitimate to share information to non-lending and often unregulated entities. The issue will be brought before IBA (Indian Banks’ Association, the bank lobby). Simultaneously, it would be taken up with RBI,” a senior banker who was part of the discussion told ET. One of the banks is learnt to have informally discussed the issue with RBI.
Indeed, Fintech firms, according to another banker, end up amassing more information than banks. “Information obtained by a bank from a credit bureau is typically customer-specific. But Fintech companies receive information on customers spread across banks – their names, credit history, card numbers, cell numbers, PAN, address etc. They can trade on this information to move customers from one bank to another. Also, as of today, there are no security guidelines for data storage by Fintechs,” said the person.
Unlike banks and non-banking finance companies, Fintechs cannot technically approach credit information companies for credit history of customers. So, in obtaining the information they take consent of individuals they spot on the internet.
“People give their consent either in the course of web interface or agreeing to the terms and conditions while downloading a Fintech App. So, an individual ends up allowing a Fintech entity collect her credit history from the credit bureau on her behalf,” said a person.
Credit information companies or credit bureaus have been operating for more than a decade. But the recent flashpoint for banks was the aggressive pitch by one of the Fintech firms and its decision to offer customers reward points on timely payment of credit card dues.
However, while the Fintech company in question has sparked the battle, banks are questioning the wider practice of credit bureaus freely sharing customer information with all kinds of Fintech companies.
Credit information companies or credit bureaus maintain creditrelated information of individuals and corporates after collecting data on loans and credit-cards from member institutions periodically.
The credit bureaus use the information to generate credit reports and credit scores and are ‘supposed to’ provide data to help banks and other financial institutions to filter applications for loans and credit cards.
But many in the FinTech world believe that information on credit and credit score should travel beyond providers of credit for the benefit of consumers. According to Hrushikesh Mehta, country manager of ClearScore, a FinTech startup,
“As we move to democratisation of data in India it is in the consumer interest to have access and control over their own data from all sources as long as the following conditions are maintained: Consumer consent is obtained; the receiving party is ISO27001 certified or adheres to security standards of the IT Act; the data is displayed to the consumer; the data is stored on servers in India; authentication services are provided by the credit bureau and consumers are able to revoke consent and delete — at will — their data from the receiving party.”
Anand Kumar Bajaj, founder and CEO of PayNearby, says, “To build a stronger Eco system and facilitate better credit decisioning, credit bureaus should incorporate not only repayment behaviour but also consistency behaviour/patterns on transactions too. Social data, transaction data, purchasing habits, spend patter, all should form part of a robust credit decisioning process to uplift a participatory ecosystem allowing everyone to contribute and utilise the platforms for betterment of financial systems. It would be wonderful to allow a consented sharing of this property for controlled end use with larger benefits in mind.”
The coming days would reveal whether banks are justified in opposing the FinTechs — whether they are overeacting to the business practices of FinTechs’ practices and to what extent financial start-ups can unsettle banks.