Why the fintech ecosystem needs clear data laws to thrive | The Financial Express

Why the fintech ecosystem needs clear data laws to thrive

Be it targeted advertising that follows us around on social media or mass spam calls we receive, most of us have begrudgingly accepted this paradigm of having little to no control over our data.

Why the fintech ecosystem needs clear data laws to thrive
Our entire digital footprint in the form of data is out there in the big, wide world for anyone to access.

By Rajat Deshpande CEO and Co-Founder, FinBox

Let’s face it: Our entire digital footprint in the form of data is out there in the big, wide world for anyone to access. Be it targeted advertising that follows us around on social media or mass spam calls we receive, most of us have begrudgingly accepted this paradigm of having little to no control over our data.

But problems magnify when it comes to financial services. The misuse of data can lead to fraud, identity theft and massive monetary harm to the consumers of the sector while a lax privacy structure can put banks, fintechs, and other players out of business.

Indian banks witnessed 248 successful data breaches between June 2018 and March 2022. A majority of them were credit-card-data-related. These numbers are simply a reflection of India’s under-equipped banking and financial data protection infrastructure. Cyber breaches, however, fall under the extreme end of the online privacy violation spectrum. In most cases, data is often compromised as soon as it enters the online realm.

But that doesn’t stop us from hoping for stringent regulations to be put in place. And why not? In an ideal world, we the public (or data principals in tech-law speak) are the rightful owners of our data.

For years, the hope for a solid data privacy framework was pinned on the 2019-tabled Data Protection Bill. But early this August, the central government withdrew the bill, promising a more comprehensive replacement. There’s no doubt that a robust law is the need of the hour not only to regulate the use of this data but also to empower customers and good-faith businesses to make ethical and lawful choices when it comes to harnessing this data.

One small online transaction, a giant leap for data users

Any digital user transacting online invariably shares their data with multiple parties—some visible and others, not so much. A simple e-shopping transaction, for instance, allows data access by the merchant, the banks of both transacting parties, card network processors, and possibly FinTech companies at the back end. Add more frills to an e-transaction, like an EMI payment or a direct purchase on social media, and the number of data users keeps growing.

The sharing of information doesn’t stop there. In the absence of a clear-cut financial data regulation regime, it’s impossible for consumers or even the regulators to be sure that the data is being handled carefully, anonymised, encrypted and most importantly, not being leaked to anyone who’s not entitled to access it.

There are, however, steps that regulatory bodies have taken to protect user data. For example, RBI’s push to tokenise card details on merchant sites helps protect user data to an extent. While such moves are a step in the right direction, India’s still got a long way to go when it comes to giving data principles control over their own information.

The rise of FinTechs and the lack of regulation

The past decade has seen a rise in digital transactions and with it, a mushrooming of FinTech companies. EY reported that FinTech funding saw a 3X jump in 2021! While the government has encouraged this growth and the innovation that accompanied it, the regulation of this nascent-but-fast-growing industry is still fragmented, with no definite framework governing it. After all, formulating effective rules for FinTech needs in-depth knowledge and a nuanced understanding of technology and its impact. This calls for a regulatory body which takes into consideration three crucial aspects of FinTech: technology, financial institutions, and data.

The nascent sector is often touted as the harbinger of innovation but also written off for the lack of regulatory oversight. This is a conundrum that must be fixed with clearly laid out laws and guidelines that both set guardrails for the entire sector and ensure that good actors get to innovate without having to worry about overstepping their bounds when it comes to utilising data for use cases such as lending, wealth management, advisory and other spaces.

Banks and their case file on data privacy

RBI regulations — which primarily govern banks and lenders — are yet to frame comprehensive data protection rules that address crucial aspects of privacy. While the recent digital lending guidelines have held regulated entities responsible for the storage and protection of data, there are no decisive guidelines against cross-selling information.

The data privacy issues in the banking sector also go beyond online activity. There’s the often-overlooked issue of data in physical form. Legacy institutions still have a fair amount of paperwork involved. For example, onboarding a new customer requires paper applications and identity proof. What happens to these physical pieces of sensitive information once they’re fed into online systems? These little nuances of data protection can only be addressed when one maps the intricate journey of private data, end-to-end.

Conclusion

With the lack of all-compassing data legislature today, the onus of information sharing and protection currently lies with individuals. The measures, if any, are little-known and expect citizens to go the extra precautionary mile — an impractical task in a country of over 900 million internet users. A robust data privacy law is imperative — it was needed yesterday. The government has promised a more comprehensive data protection rule in place of the data protection bill. Here’s hoping that these new regulations are watertight, take a privacy-first approach, and — above all — serve the interest of citizens.

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First published on: 15-11-2022 at 06:09:50 pm
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