Banks Lock Horns With Fintech Startups Over Data Security

Leading private banks — HDFC, ICICI, Citi, Standard Chartered and others — have now come together to oppose fintech companies from accessing users banking history for credit scores and reward purposes.

The move comes close on the heels of the launch of a fintech startup Cred by serial entrepreneur and investor Kunal Shah. Cred offers credit rewards based on one’s CIBIL/Experian score.

Fintech startups offering free credit scores, rewards, and consultancy, take users’ consent for fetching their banking history or credit card details. However, banks are reportedly of the opinion that fintech startups are often unregulated and do not have the burden of following RBI norms.

This free access of consumer data could compromise data security and right to privacy concerns, the banks say. 

Responding to the allegation, Bharat Ravuri, founder and CEO of a fintech startup MintZip told Inc42, “We all seem to be missing out on one critical element in this debate – data is not owned either by the banks or fintechs startups. Data is owned by the customer. So, if customer is giving consent to any party to utilise their data to provide a service, we all should respect such a decision of the customer. Having said that, fintech startups should also ensure that this consent is explicit and not hidden in T&C or small print.” 

One private bank’s general manager, on the condition of anonymity, told Inc42,  that some of these fintech startups are involved in unethical practices. For example they ask users to change their credit cards to the banks that the particular startup is parternering with.

“People are not even reading what their terms and conditions are. Some of these fintech companies, which we never collaborated with, keep telling our customers to change their credit cards. And, that the credit card provided by us are not that great,” the source added.  

Eight leading private banks, after having a conference call last week, have now decided to take this matter up to the Indian Banks’ Association (IBA) and the Reserve Bank of India (RBI), reports ET.

“We would first meet the credit bureaus, ask them whether it’s legitimate to share information to non-lending and often unregulated entities,” ET quoted a senior banker who attended the conference.

Currently, a number of companies such as CreditMantri, Cred, BankBazaar, and others offer free credit scores, rewards, credit card suggestions and credit card management as well. 

The registered fintech startups which seek credit information fall under the Credit Information Companies (Regulation) Act of 2005 (enacted in 2006) and are allowed to facilitate efficient distribution of credit for matters concerned or incidental to it. Down the line, this has adversely affected the banks’ marketing schemes.  

Ravuri stated that fintech startups are limited by what they can do as against banks (as banks have regulatory licenses to operate). So, if banks indeed have great products to offer to customers, they need not worry about customers abandoning them and going to another bank. Fintech startups will indeed act as a catalyst for such banks

He concluded, “More importantly, we need to credit customers that they have the ability to make the right decision – which entity to engage for what product/service. Today, they are presented with multiple choices and they’d go to the place that has better value & service.”

Update: December 10, 2018; 18.37

In the second paragraph, details regarding Cred’s functionality has been updated.