In this paper, we will navigate the key provisions of the DPDPA, its implications for financial institutions and fintechs, the challenges of compliance, and strategies for ensuring a smooth transition to the new regulatory framework. 

A milestone in data protection

As noted, the DPDPA represents a significant milestone in India’s journey toward comprehensive data protection, aiming to balance individual privacy rights with lawful data processing needs. The law introduced key principles such as principle of consent, purpose limitation, data minimization, personal data accuracy, storage limitation, data safeguard, and principle of accountability, aligning with global standards like the GDPR while incorporating India-specific regulatory nuances.

Since its enactment, the regulatory landscape has continued to evolve. The latest draft DPDPA Rules, 2025, introduces several refinements to enhance compliance and implementation, including:

• Data localization – critical personal data must remain in India
• Consent mechanisms – ensuring users fully understand how their data is collected, processed, and shared
• Enhanced transparency – mandating detailed disclosures on data usage, storage, and retention policies
• Right of Data Principals – individuals can access their data, request corrections or deletions and file grievances with fiduciaries and escalate unresolved issues to the DP Board
• Duties of Data Fiduciaries – the Rules impose severe fiduciary obligations, such as:
  - security measures include encryption and access controls
  - carry out Data Protection Impact Assessments for significant data fiduciaries
  - establishment of grievance redressal mechanisms.

 

Impact on financial institutions and fintechs

The Digital Personal Data Protection Act (DPDPA) 2023 introduces stringent data privacy and protection requirements for financial institutions and fintechs. 

However, ensuring compliance will demand significant investments in new systems and processes, which is one of the biggest challenges for this industry. Fintechs, in particular, will need to invest in stronger compliance measures to meet these evolving requirements. Organizations deemed to be ‘high-risk entities’ – including banks and fintech firms handling large volumes of sensitive personal data – will face heightened scrutiny and stricter compliance obligations.

Failure to comply could lead to significant financial penalties, with fines ranging from INR 10,000 for minor violations to INR 250 crore for severe breaches. Additionally, data breaches and non-compliance can erode consumer trust and brand value, with clear reputational implications.

Mixed reactions across financial services

Reactions to the draft Rules across the financial sector have been mixed reactions. While the proposed framework aligns with global data protection standards, industry leaders have highlighted implementation challenges, particularly for startups and MSMEs that may struggle with compliance costs. The Internet and Mobile Association of India (IAMAI) has urged MeitY for a 24-month transition period to allow businesses adequate time for compliance.

Despite these challenges, the Rules represent a significant step in strengthening India's privacy framework. They bring India in line with global data protection norms while incorporating country-specific provisions. Although these regulations raise the bar on compliance, they also remove ambiguity for global businesses. Companies already operating in India, or eyeing the market, must get ahead by thoroughly preparing for these robust requirements – building compliance into their strategy to ensure sustainable growth and success.

Other key concerns raised by industry include:

• Operational burden – financial institutions and fintech firms may need to enhance or revamp their existing data governance practices to align with compliance requirements
• Cost implications – compliance demands increased investment, including hiring data protection officers (DPOs) and upgrading security infrastructure
• Impact on customer experience – ensuring regulatory compliance while maintaining a seamless and user-friendly experience remains a challenge.

Key priorities for financial institutions

While financial institutions and fintechs across India are at different stages of readiness, adherence to some key principles can help firms smooth their path to DPDPA compliance. Below we set out the priority areas of focus to strengthen internal governance, ensure robust security measures, and foster a culture of data protection.

Comprehensive privacy policy development. Establish clear, transparent, and legally sound privacy policies that outline how customer data is collected, processed, stored, and shared. Provide explicit guidelines on consent mechanisms, data retention periods, and user rights.

Implementation of strong data protection measures. Institutions must deploy rigorous access control and role-based authentication policies. Furthermore, the data minimization principle must be followed to collect only the required data for specific purposes.

Regular privacy audits and risk assessments. Financial institutions must conduct periodic audits and assessments to identify compliance gaps and security vulnerabilities. Key actions include:

• Data flow mapping to track the movement of personal data within the organization

• Vulnerability assessments to identify weaknesses in digital infrastructure

• Policy and procedure audits to verify alignment with data protection regulations

• Regular penetration testing to uncover potential security gaps.

Employee training and awareness. Developing a security awareness culture within the organization is critical to staying alert to data breaches and making sure staff is able to meet privacy standards.

Robust vendor compliance mechanisms. As fintech partnerships and outsourcing grow, institutions must ensure third-party vendors comply with DPDPA regulations. This involves:

• Incorporating data protection clauses in vendor contracts

• Conducting due diligence to assess vendor security controls

• Setting up monitoring mechanisms to track vendor compliance with data handling requirements.

Data breach response planning. A well-defined incident response strategy that includes:

• A dedicated Data Protection Officer (DPO) to oversee compliance and breach management

• Incident response protocols for detecting, containing, and mitigating breaches

• Timely reporting mechanisms to notify the Data Protection Board and affected individuals within stipulated timelines

• Post-breach remediation measures to strengthen security and prevent recurrence.

Capco’s three-step compliance framework

To navigate the Act’s complexities, we recommend financial institutions and fintechs adopt a structured approach via a three-step framework.

Navigating a paradigm shift in data protection

While DPDPA compliance presents challenges, a structured approach to compliance, focusing on transparency, accountability, and technological preparedness, can help financial institutions on the journey ahead.

As firms negotiate hurdles posed by operational adjustments, new security measures, and fresh financial investments, they should also view this as an opportunity to build trust, enhance data governance, and foster responsible customer service. Organizations that proactively adapt to these regulations will not only ensure compliance but also gain a competitive advantage in the evolving digital economy.

Capco brings deep expertise in compliance and regulatory transformation. Contact us today to find out how we can help you meet the requirements set by the DPDPA.

Reference: 

¹ https://dpdpa.com/index.html