Indian High-street Banks Oppose Fintechs Access to Bank Client Data

According to the Economic Times of India 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.

Source: Economic Times

Editorial Comment:  Ever since the Indian Supreme Court has prohibited the use of Aadhaar for commercial purposes Fintechs are cut off from a vital source for information on the identity of potential borrowers.  Fintechs are now on the hunt for alternative data. 

In addition credit histories play a critical part in the credit evaluation process.  However credit histories are the result of information sharing of banks through the use of credit bureaus.  Data is shared on the basis of reciprocity.  Unless Fintechs participate in data sharing with credit bureaus on same principle they should not expect to receive any credit data.