RBI rules likely to help only a few fintechs

The Reserve Bank of India’s move to provide financial technology companies access to data from credit bureaus is expected to bring a previously uncontrolled sector under regulatory scrutiny. However, analysts believe that the new rules will benefit only a few corporations, and that worries about data protection will remain unresolved.

Until now, only regulated businesses, such as non-bank lenders, had access to this information. The RBI’s most recent set of rules does not stipulate that only regulated enterprises can access this data for analytics, allowing more businesses to obtain data from credit bureaus. However, the regulator requires that these “designated users” be incorporated in India and controlled and owned by Indians.

Credit data could be used by a variety of companies to give better-tailored products to consumers. Fintech firms have employed proprietary models to assess the creditworthiness of different segments of clients in the absence of traditional credit data. Creditworthiness is determined by a variety of factors, including, in certain cases, smartphone data and social media footprints, as well as work and education. However, many of these variables have not been proven to be reliable predictors of willingness.

According to a source familiar with the situation, the regulator wants to reduce risky loans and improve credit data processing. The new framework may be able to assist the industry. However, since multiple fintech firms are engaged in customer data processing, the current restrictions may benefit only a select few.

The experts also pointed out that, unlike banks and other credit institutions, fintech firms’ users are not required to obtain explicit agreement from customers before accessing their data. To maintain client data safety, the new regulations require these fintech enterprises to submit a CISA auditor certification. Experts warn, however, that data misuse is still a danger.

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