Privacy and Fintech in India: Balancing Innovation and Data Protection

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The global fintech sector is undergoing a phase of accelerated growth, attracting a whopping  US$ 95.6 billion in investments globally. This momentum carried into 2025 as quarterly investments rose from US$ 18 billion in the third quarter of 2024 to US$ 25.9 billion in its fourth quarter. With projections of becoming a US$ 1.5 trillion industry by 2030, fintech is poised to redefine the global financial services landscape.

India is a significant contributor to this trajectory. Its fintech market is valued at approximately US$ 689 billion in 2023, and is projected to reach US$ 2.1 trillion by 2030 at a robust CAGR of 18 percent. This surge can be attributed to progressive government initiatives, the growth of digital public infrastructure like Unified Payments Interface (UPI), which on average processes over 500 million transactions daily. There is also a strong foundation of institutional and technological support. These factors align with India’s broader ambition of establishing a US$ 5 trillion economy by 2028-2029.

With projections of becoming a US$ 1.5 trillion industry by 2030, fintech is poised to redefine the global financial services landscape.

Responsibly supporting this vision, the Digital Personal Data Protection Act, 2023 (DPDP), and its draft Rules of 2025 (which seek to set down the procedures for implementing and enforcing the Act) aim to balance individual data rights with the need for innovation and digital commerce. However, this also necessitates strategic operational adjustments by fintech firms to ensure compliance. This may present a short-term compliance challenge for fintech firms, but it will act as an enabler of sustainable growth in the long run.

Present Context

The Digital Personal Data Protection Act 2023 represents a pivotal development in India’s approach to data governance, especially for the rapidly expanding fintech sector. It strikes a careful balance between protecting user privacy and promoting economic innovation, offering greater flexibility and reduced compliance burdens compared to many other global data protection regimes.

• Data transfer: A significant feature of the Act is that it permits cross-border data transfers, only barring transfers to specific countries deemed non-compliant with privacy norms. This significantly reduces operational costs and regulatory friction for foreign and domestic players alike, allowing for greater and smoother cross-border fintech collaboration.

• Consent: The Act introduces strict mandates around consent, requiring verifiable approvals and demands customised consent systems within fintech platforms. Significant data fiduciaries, i.e. entities handling sensitive or high volumes of personal data, must now conduct Data Protection Impact Assessments (DPIA), though startups enjoy several exemptions to encourage innovation and reduce regulatory pressure. This balanced application of strict compliance and exemptions may go a long way to boost public confidence in engaging more proactively with fintech services in the future, while also allowing more fintech solutions to be produced.

It strikes a careful balance between protecting user privacy and promoting economic innovation, offering greater flexibility and reduced compliance burdens compared to many other global data protection regimes.

Nonetheless, there are certain inconsistencies within the Act. On one hand, the Act upholds informed consent, emphasising data principals’ autonomy over their data. Data principals are expected to fully understand and accept terms before granting consent, which are to be considered final. On the other hand, the Act includes an illustration (under section 6(1)) suggesting automatic expunging or partial rejection of consent with respect to some of its personal data. This may contradict the notion of final, informed consent by the user of a fintech service, introducing a prescriptive mechanism that overrides user intention. Such dichotomies create tension between user autonomy and regulatory control, and could create procedural uncertainty when fintech firms, i.e. data fiduciaries, process personal data.

• After-breach effect and deletion: The DPDP Act through its rules mandates prompt reporting of all data breaches to the Data Protection Board and affected individuals, with potential penalties for security lapses. This universal requirement may strain smaller firms. Furthermore, the rules mandate data fiduciaries to delete personal data of users inactive for three years, notifying them at least 48 hours before deletion. This may prove to be too short a duration for people to store or process their data as per their requirements, additionally giving rise to more potential compliance issues.

• Purpose limitation: The Act and its draft rules aim to ensure that personal data (whether financial or nonfinancial data) can be used by the data fiduciaries only for its original stated purpose. Additionally, in line with global best practices upheld by data protection regimes like the General Data Protection Regulation (GDPR), it also encourages transparency and the responsible use of personal data.

Data principals are expected to fully understand and accept terms before granting consent, which are to be considered final.

Challenges 

India’s DPDP Act and the upcoming rules present a robust regulatory framework and could have the effect of advancing India’s domestic fintech sector while ensuring public data safety and responsible innovation. However, they also introduce several unique challenges for fintech companies operating within the country’s complex digital landscape.

• Compliance strategy: With an adoption rate of 87 percent, fintech in India is growing exponentially. This may contribute to future logistical challenges for fintech companies, especially nascent ones, in managing consent, ensuring data accuracy, and complying with breach notifications and data deletion requirements as mandated by the Act and its Rules.

Companies may seek to use AI tools to mitigate these issues, prepare breach and deletion protocols that could be operationalised in times of need.

• Regular regulatory consultations: Platforms could be created for fintech companies to engage in regular stakeholder conversations and consultations with ministry officials, much along the lines of the stakeholder meeting on DPDP Rules held in early 2025. This may enable better informed policy decisions and more effective sectoral implementations by Indian fintech companies.

• Clarity of consent: To foster the consent-related cultural shift the Act envisions, regulators might create clear guidelines for specific data processing scenarios by fiduciaries, and the levels of consent involved by users. A balance must be struck between safeguarding data rights and the practical implementation of fintech solutions.

• Digital literacy: India’s diverse digital literacy levels present a challenge. Users of Indian fintech solutions may lack awareness of consent mechanisms and data protection. To address this, fintech companies could collaborate with the Government of India and state governments to create simple, localised, multilingual, or vernacular educational modules targeting fintech users, thereby increasing awareness and greater engagement with fintech companies and products.

Companies may seek to use AI tools to mitigate these issues, prepare breach and deletion protocols that could be operationalised in times of need.

India’s burgeoning fintech sector is on a transformative path, backed by strong investments, digital infrastructure, and progressive regulation. The Digital Personal Data Protection Act, 2023, along with its upcoming rules, offers a robust framework for balancing innovation with data privacy. While the Act introduces critical safeguards and provides for sustainable growth, regulatory clarity, and enhanced user trust, certain operational challenges, especially around consent, data deletion, and breach reporting, require successful mitigation. To fully harness this potential, ongoing policy dialogue, targeted digital literacy efforts, and strategic compliance mechanisms are the way forward in fostering a resilient and responsible fintech ecosystem in India.

Debajyoti Chakravarty is a Research Assistant with the Centre for Digital Societies at the Observer Research Foundation

• Privacy & Data Protection
• India
• cross border fintech collaboration in india
• digital personal data protection act
• fintech growth in india
• fintech platforms in india
• fintech sector growth in india
• fintech sector in India
• fintech solutions in India
• India’s DPDP Act

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