Banks, NBFCs see hit to cross-selling – Banking & Finance News

Weighed down by the draft rules under the Digital Personal Data Protection (DPDP) Act, released on Friday, financial sector entities are hoping the final norms will provide them some relief from a potential hit to their cross-selling capabilities. According to the draft rules, banks and NBFCs will no longer be able to freely share customer data with their subsidiaries. They will be required to obtain explicit consent from customers before sharing such information with subsidiaries.

“The cross-selling of products and services will now become dependent on obtaining customer consent. Banks and NBFCs will need to invest more time in educating customers about how their data will be used responsibly,” said Siddharth Vishwanath, Advisory Markets leader, PwC India.

Sharing customer data among subsidiaries is a common practice in the banking sector. At present, banks and NBFCs utilise their network of subsidiaries by freely sharing customer data within the group. For instance, when a customer opens a savings account with a bank, the bank shares the customer’s personal data with its subsidiaries. These subsidiaries then use the data to approach the customer and offer products and services such as insurance, mutual funds, demat accounts and other related financial solutions.

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“Sharing customers’ data with subsidiaries saves cost and time for banks. Lenders will try to convince customers to give consent to share their data,” said a senior official of a private sector bank.

The DPDP Act restricts banks to use customer data solely for specific purposes. “The draft rules permit banks and NBFCs to use customer data exclusively for the specific purpose for which it is collected. For instance, if a bank gathers data to open a savings account, that data cannot be used to cross-market other products or services unless the customer provides explicit consent for such use,” said Samir Shah, partner, EY.

Taking approval from existing customers poses a major challenge, particularly in semi-urban and rural areas, where many customers do not use digital banking channels.

“Obtaining consent from existing customers will be a huge challenge. Banks and NBFCs will need to reach out to a diverse customer base, including those who rely solely on branches or banking correspondents,” said Vishwanath. “Additionally, there are customers who are only moderately active, using banking services occasionally. Addressing these segments effectively will pose significant hurdles for banks,” he said.