The transition from traditional banking to digital lending is evident. The progression of technology and wide acceptance of digital solutions has made digital lending a more popular option in the country. Since applying credit through digital lending platforms is easier and quicker, its global market value has been soaring rapidly.
With numerous benefits of online lending comes a few limitations. One of the limitations that people are always wary of is the risk of privacy and security. Since security and privacy in digital lending have become the largest cause of worry, the lender’s focus on data protection is always undeterred!
Let us know how digital lenders are using high-tech tools and data security solutions to protect the confidential information of borrowers. They wish to create an environment of trust where the borrowers feel confident in sharing their personal and financial information with online lenders. Know everything about security and privacy in digital lending to make a confident choice!
Why Data Is Important for Digital Lenders?
The lenders need customer data to evaluate their credit profiles, bank details, etc., and determine how eligible they are to get a line of credit! The lenders ask for personal data from the borrowers to ensure only legitimate applicants apply and avail of the loans. This way, they try to prevent fraud and ID theft risks. When applying for a loan, you must provide personal details, including full name, address, contact number, date of birth, employment status, etc.
The lenders also need credit profiles of the borrowers to know whether the borrower will be able to pay the dues. The lender also determines the interest rates for their loans based on the credit score, income statements, current debts, etc.
The Need for Data Protection
Data protection is essential for protecting the confidential facts of the borrowers. Once the borrowers trust that their sensitive information will be safeguarded, they can provide it without hesitating. This is why lenders invest in innovating and implementing robust data protection tools.
Here is why data security and privacy is essential.
1. Risk of Theft and Fraud
Data protection software aims to keep you from becoming the cybercriminals’ target. The online lending platforms must secure data from theft and fraud. The hackers can misuse your PAN or Aadhar number, bank account numbers, credit history, etc. and execute detrimental frauds.
2. Boosting Borrower’s Trust
For a trustworthy lender-borrower relationship, it is important to use strict data protection tools. The consumers must feel confident that their details are secured. The digital lending platforms prevent data breaches and save themselves from losing the borrowers’ trust. In case of any compromised data security event, the lenders lose their reputation and customer loyalty.
3. Compliance
Like every other country, even India imposes certain regulation acts, making data protection tools and software mandatory. These data protection laws impose stringent norms. The lenders must abide by the same and ensure that the data they gather and store, are protected. Any non-compliance with these state regulations may lead to the payment of heavy fines and serious legal consequences.
4. Lowers Financial Loss
A compromised data security can also lead to financial losses for digital lenders. They might face legal issues imposing penalty costs, compensation to customers, and costs arising due to operational disturbance and loss of customers, etc. After bearing the loss, they will have to finally invest money in developing data security measures.
5. Ethical Reasons
Since borrowers trust online lenders with their confidential information, it becomes the responsibility of digital lenders to handle their data carefully. These ethical reasons keep them glued to legitimate data use, maintaining high ethical standards, and cultivating a transparent culture.
How to Ensure Privacy in Digital Lending?
As stated earlier, digital lending platforms need the personal and financial information of the customers. After gathering this critical data, they have an obligation to securely store this information. It is imperative that only the concerned has access to it and is used legitimately. For example, the sharing of this data might be a privacy issue. Digital lenders often have partnerships with third-party or service vendors. This needs them to share the data for credit checks, document verification, collection, and more. Sharing the data with third-party vendors may increase privacy risks.
When the data protection measures are not robust or not properly implemented, it can lead to unauthorized access or cybercrimes. The data thieves can use the personal or financial details of the borrowers to extort money and carry out other fraudulent activities. Digital lenders should comply with the regulations and leave no stone unturned in securing sensitive information of the users.
The following can help ensure data privacy:
- Data encryption
- Purpose limitation
- Data minimization
- Secure data storage
- Safe data transfer
- Customer consent
- Access control
- Regular audit
- Compliance check.
- Consumers training
Wrapping Up
Data safeguarding is fundamental for digital lending platforms. Following the practices mentioned above helps maintain consumer trust. Compliance with regular audits is imperative for preventing cybercrimes. Following all the security measures allows digital lenders to retain their reputation and prevent consumer attrition.
FAQs
1. What is data security?
Ans. Data security is protecting consumer data, preventing unauthorized access and unwanted use, and avoiding identity theft.
2. Why are digital lending guidelines, including security and privacy, important?
Ans. The Reserve Bank of India issued digital lending guidelines in 2022 to impose stringent data security and privacy norms and regulate digital players. The guidelines also imposed restrictions on assessing a borrower’s credit profile to maintain privacy.
3. What are the ways to comply with data security and privacy?
Ans. The best ways to comply with data security and privacy include providing privacy notice to the consumers and maintaining transparency, explaining the purpose of data collection, quick complaint resolution, not changing data without the borrower’s consent, due diligence, data minimalism, maintaining high-technological standards and cybersecurity measures, etc.
4. How to safeguard data when sharing with third-parties?
Ans. The guidelines include borrower’s consent and explaining them how and why data-sharing is important. The lender must also share the third-party data agreement with the borrower.
5. Is data security and privacy compliance mandatory for digital lending companies?
Ans. The online lending institutions have to abide by the regulatory compliance. They should follow data privacy and audit protocols to avoid legal issues and penalties later.