(Bloomberg) -- The rise of virtual banking across the Asia region will boost financial inclusion, but regulators will need to ensure consumer data is protected, according to a new paper from the Bank for International Settlements.
Although access to bank accounts is increasing, the use of the financial system to save and borrow is low both for developing economies and those with high levels of income and education, a gap that can be closed by technology, according to research from the BIS. Technology brings down transaction costs for serving higher risk customers and virtual banks in Asia could mean financial inclusion takes an important step forward, the findings show.
Yet, the rise of digital platforms means new data on customers is being created. Protection of that data needs to be a priority for policy makers, according to Siddharth Tiwari, BIS chief representative for Asia and the Pacific and a co-author of the paper.
“It is a deep public policy concern that across increasingly large segments of the economy, data controllers can trade data that individuals have generated without their permission,” said Tiwari. “The question is: who has control over this data, where should it be stored, who and under what conditions should it be shared and who should operate this data governance system,” he said.
According to the BIS paper, India and Singapore may offer a model for creating a platform under central bank supervision that facilitates the sharing of personal data with financial service providers, with customer consent. At the same time, new data -- or information capital -- can be used to make decisions on lending instead of relying on traditional sources of collateral, which regulators will also need to monitor.
Virtual banks leaning more on information capital in place of traditional collateral will need to ensure the validity of data and enforce high standards that is needed for unsecured lending, according to the BIS research.
Under debt resolution regimes where both virtual and high street banks are subject to the same regulations, unsecured lending poses a higher risk of loss to lenders. Keeping losses at a minimum requires more frequent assessment and the use of tailored loans that meet repayment abilities.
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