Lenders using your digital payments data to gauge your creditworthiness

With 'less-cash' the mantra of the day, consumers are using the digital medium like never before to purchase a wide variety of products.

Right from groceries, recharging mobile and DTH connections, they are also using them to purchase stuff that have social stigma attached such as alcohol, sex toys, and credits to play online poker etc.

In case you are wondering if financial institutions sell or share your transaction data with third parties, here's some good news: They don't.

Banks and financial institutions, however, do use that data to target the right consumer base for cross-selling and for credit-profiling.

Digital transactions may lead to more customised and cheaper loan offers from your bank if you have gone digital. As Indians start going cashless and opt for digital mode via banks' wallets and mobile apps, lenders are finding new ways to use such data.

Deepak Abbot, senior vice-president, Paytm, said the company uses transaction-level data to customise the user experience by showing them relevant categories to cross-sell other services. "Paytm does not offer payment solutions to services restricted by law. Our payments bank account will be available to all customers and we will abide by all the regulations set forth by the authorities," he said.

On sharing user data, Upasana Taku, co-founder, MobiKwik, said, "We don't share data with any outside party. If somebody uses the wallet to buy alcohol or online game like poker, this data will not be used against them while making banking decisions by Mobikwik or its partners in future.

"…we shall use the transaction history of our users to assess their eligibility for the financial products we shall offer in the future," Taku said.

Less-cash use implies higher tracking of transactions. While banks so far had demographic information, the digital transactions from mobile, UPI or wallet apps tell them who is spending on digital medium, how much and where. This data is put into the models created by business intelligence teams. However, the exact nature of how the data is used has not been revealed citing proprietary systems.

While HDFC Bank is offering targeted deals depending on the location of customers using the bank's wallet and app, Axis Bank is squeezing out every last bit of juice from its six crore digital transactions every month.

Sangram Singh, head of card and payments business, Axis Bank, said, "Certain consumer behaviour information can help you for credit-scoring for the purpose of offering credit cards or instant loans. This kind of data is very useful when it comes to unsecured loans."

State Bank of India, like many others, uses digital transactions data to identify opportunities for cross-selling financial products to its customers as well.

"A good example would be travel insurance with a flight ticket. The data is monitored and analysed regularly to identify new target audience and expand our customer base. The customer base is now expanding from the metros towards the tier 1-2 cities which were under-penetrated earlier," said SBI spokesperson. The data from its recently released merchant app is also used to create credit profiles for merchants and provide them with SME financing products.

The use of digital medium to conduct transactions removes the anonymity. This is the reason why privacy concerns have emerged, as also how the data can be used against consumers.

Ritesh Pai, senior president and country head, digital banking, YES Bank, said data from wallets is primarily being used to understand the customer behaviour, find out the most frequent transactions and onboard more merchants who can offer similar or supplementary products and services to users. Currently, wallet transactions are not reported to Cibil or any other bureau, he said.

According to Sunny K P, additional general manager, digital centre of excellence, Federal Bank, the lender utilises data from its UPI app and mobile banking app to run campaigns to boost the sector-wise transactions. "We try to promote digital channels to customers who are using them less, thus helping both the customer and the bank. Transactions which have better average ticket size get special attention. The data is also being used for risk profiling. Transactions in these accounts…in turn is being used for evaluating credit proposals," he said.