Account Aggregator – A Giant Leap Towards Highly Connected Financial Ecosystem
By Vijeth Shivappa
In a recent development, major banks in India have formalized the Account Aggregator network which will enable customers to easily access and share their financial data with the financial services providers. These major banks are State Bank of India, ICICI Bank, Axis Bank, IDFC First Bank, Kotak Mahindra Bank, HDFC Bank, IndusInd Bank, and Federal Bank. As of now, only few major banks like HDFC Bank , Axis Bank & IndusInd Bank are using this information framework to efficiently service their auto loan & personal finance management product offerings .This newly launched open digital financial platform has been touted as a next big move in providing financial products and services to the widely under served market segments. The IndiaStack, the public digital infrastructure underneath the highly popular UPI has been further enhanced to launch this Account Aggregator framework poised to take the center of the stage once again.
This framework is fully recognized & supported by various regulators like RBI, SEBI, IRDA & PFRDA, to facilitate real-time sharing of financial data. The Account Aggregator framework is a customer consent based financial information sharing system, which includes information related to Account Aggregator, FIU (Financial Information User) and FIP (Financial Information Provider). This forms a cutting edge digital financial infrastructure with vast data available for financial institutions. The framework can exchange data digitally, where credit or insurance provider can use the data for a limited time frame for the specific credit or insurance related decision making. It enables the easy flow of data between banks and financial service providers.This allows financial institutions to get a consolidated financial report or a score card of potential customers and customize their products & services offerings.
Customers or business should create an account with an account aggregator framework. Customers or businesses can provide consent to a lender to access their financial data through an account aggregator. This could be when the customers are looking for a loan or some other financial services which requires their financial information to be shared . Once the consent is obtained, an account aggregator requests permission from the financial data providers ( FIP) to access the customer’s consented financial data. Data is then sent to that Account Aggregator which in turn, shares it with a financial data user (FIU). This enables financial institutions to better evaluate the customer’s financial profile and do the better risk assessments for providing a loan or an Insurance.
The Account Aggregator will act like a financial data exchange to access financial data of customers in different places such as telco records, banks, tax, insurance and share it with financial service providers for a specific purpose. Since all of the financial information is available in digital form centrally , financial institutions can effectively use cutting edge technologies like Artificial Intelligence, Machine Learning & Advanced Data Analytics to analyse this immense data flows. This will help financial institutions to take quick informed decisions, even for small asset consumers and businesses in a more cost efficient way. The profound impact of Account Aggregator ecosystem can be witnessed in Lending,Wealth Management, Personal Finance Management Apps, Robo Advisory &
Reconciliation of Accounts.
From the data protection and compliance perspective, the RBI has given great emphasis on the Governance & Security of the financial data flowing through the entire ecosystem. Business of an Account Aggregator will be entirely Digital Technology driven and scalable to cover any other financial assets or financial service providers as may be identified by the RBI in the future. There will be adequate safeguards built in its Digital Systems & processes, to ensure financial data is protected against unauthorised access, alteration, destruction, disclosure or dissemination of records and data. The RBI has mandated account aggregators to implement appropriate measures for Disaster Risk Management and Business Continuity. Information System Audit of the internal systems and processes will be conducted at least once in two years by external auditors. Report of the external auditor should be submitted to the Regional Office of the Department of Non-Banking Supervision of the RBI, under whose jurisdiction the Registered Office of the Account Aggregator is located, within one month of submission of the report by the external auditor.
The General Directions regarding Registration and Operations of NBFC – Account Aggregators under section 45-IA of the Reserve Bank of India Act, 1934 can be found in the RBI website. The Reserve Bank of India (RBI) has directed , Banks , NBFCs, insurance firms and other financial institutions to share customer data in a structured manner with account aggregators . The RBI has also made it clear in their guidelines to these financial institutions that the data cannot be monetised, and that data shared through the platforms should be deleted after a specific period of time. Also the data should be encrypted end to end to protect from any data security breach & misuse of the data . Customer consented financial data is shared while protecting customers data privacy.
MSMEs contribute approx 30% to India’s GDP yet this segment is vastly under-served by the formal credit system because of the lack of transparency and access to their financial data. This improved access to 360 degree view of asset & credit data, enables faster processing of small ticket size loans for MSMEs and individual customers. Invoice discounting is the practice of using a company’s unpaid accounts receivable as collateral for a loan, which is issued by a finance company. Efficient invoice discounting can offer critical advantage in situations where a business are extremely short on cash.
Account Aggregators will help lenders to gain efficient under-writing abilities to reduce their NPAs ( Non Performing Assets). As a result of improved access to reliable & consolidated financial data, financial institutions can service their customer’s financial needs with reduced risk and in more efficient way. Another area is affordable micro-insurance for MSMEs. The Account Aggregator framework can regulate, digitalize and simplify the process by providing access to reliable financial data more swiftly. Fintechs have come a long way in their transformational journey with their checkered track record. The Account Aggregator framework would be another fintech disruptor like UPI, with a great potential to transform digital economy & usher in a much needed growth in emerging economies like India.
– All views expressed are personal