As digital financial services (DFS) are seeing a surge in India, a recent study conducted by International Institute of Information Technology, Bangalore (IIITB) and CUTS International has found that majority of users of these services are aware of the privacy concerns but a majority of them (55%) are neutral about the steps they would take for preventing any privacy intrusions and harms caused by the digital finance apps. 

The study titled ‘My data or yours? Unravelling Multi-Party Privacy (MPP) among Consumers of Digital Credit in India’ was funded by the Centre for Effective Global Action (CEGA) at the University of California, Berkeley, USA. 

The objective of the study was to analyse the effects and contours of MPP when it comes to co-owned artefacts (any artefact like a photo, video or a form of correspondence where details of several individuals are enmeshed) in the context of digital lending while also analysing how borrowers and digital lending firms navigate privacy concerns with the added dimensions of MPP. The researchers also looked at the trade-offs that are considered by digital borrowers and the regulatory addressal of MPP concerns.  

The study was conducted between March 2023 and August 2024 and 2,178 DFS users from four States – Gujarat, Tamil Nadu, West Bengal and Uttar Pradesh – were surveyed. The researchers also interviewed digital lenders and consumer protection organisations.  

The researchers acknowledge that major concern with MPP is that those who are in the network of the borrowers, who have never explicitly agreed to share that content are also subjected to privacy intrusions and negative consequences like spam calls and such.  

“Digital Loan Providers (DLP) frequently use alternative data sources like e-commerce transactions, SMS, gallery or social networks to create a profile of the borrower as they do not ask for any other collateral. We wanted to understand if people are aware of it. We found that the borrowers are neutral and are willing to trade off a lot of permissions and thereby privacy as long as they achieve their objective (getting loans),” explained V. Sridhar, one of the researchers and a professor at IIITB. 

While the users ideally expect that the DFS apps should get consent from all parties involved when it comes to co-owned data, they said that due to practical reasons they feel constrained by app designs, which lack mechanisms for seeking permission for the same.  

When the researchers interviewed the DLPs, they said that since they provide collateral-free loans, it is necessary for them to gather alternate data. They also said that while it gets difficult to assess co-ownership of data, they comply with all the necessary regulations and provide necessary service to the consumers. 

While the Reserve Bank of India (RBI) guidelines recently restricted the access to a user’s phone gallery for Know Your Customer (KYC) process and limited data usage to financial SMS, the researchers said that more regulations should be framed to ensure that data collection by DLPs is purpose oriented. 

Another important aspect identified in the study was that contrary to common belief that only financially weaker sections borrow from digital lenders, most of their sample consisted of borrowers who were reasonably well placed economically.