Next Big Thing in the Finserv World: Account Aggregators – Everything you need to know
By Wilfred Sigler, Senior Director – Market Development & Digital Solutions, CRIF India
In 2016, India announced the adoption of the Account Aggregator (AA) framework, a secure system for sharing financial data that has the potential to transform investing and credit ecosystem. An account aggregator is a non-banking financial company (NBFC) regulated by RBI that offers customers services like retrieving, consolidating, organising, and presenting their own financial data. Furthermore, AA also provides a consent-based financial data-sharing platform for Banks and financial institutions to enable consumers to digitally avail of their services. This paves the way for a privacy-focused open banking system that puts the customer in control of their sensitive financial data. It has the potential to revolutionise and democratise the distribution of financial services, increase financial inclusion and grow business for lenders, wealth management, and fintech firms. Currently, there are 12 Account Aggregators with an Operating license from the RBI in India.
Participants in an Account Aggregator ecosystem
An Account Aggregator, a Financial Information Provider (FIP), a Financial Information User (FIU), and a customer make up the AA ecosystem. Banks, NBFCs, governmental agencies, insurance repositories, etc. have information about their customers and the financial service availed. An FIP’s data is used by FIU, which could be a bank providing other financial products to a customer. For instance, when determining the client’s creditworthiness while granting a loan, an FIU will acquire the borrower’s financial data from a FIP. The main function of an AA is to streamline the process by obtaining data from FIPs with customer consent and providing it to FIUs. Such a platform facilitates financial inclusion, expands customer pools, reduces customer documentation, and reduces operational costs.
Significance of an Account Aggregator for an individual
From an individual’s perspective, an Account Aggregator is a platform that enables them to consolidate their financial information from multiple sources into a single platform. It allows borrowers to gather and view their financial data, such as bank accounts, credit cards, loans, investments, and insurance policies, from various financial institutions in one place.
Borrowers’ consent is the key!
The Account Aggregators ecosystem is a safe and secure framework for users. Initially, users create an account and receive a virtual ID. They can then link their bank accounts, insurance policies, and other financial data. The Account Aggregator acts as a consent manager, ensuring explicit customer consent when sharing data with the FIU from the FIP. The system is regulated by the Reserve Bank of India, guaranteeing customer rights through a citizens’ charter. Data shared by AA is always encrypted by the FIP and can only be decrypted by the recipient (FIU). The Account Aggregators do not see or store this data. Customers also retain the right to revoke consent at any point.
Benefits of an Account Aggregator for Individuals
• Greater control over financial data: Account Aggregators give users access to their own private financial information, which is otherwise stored with FIPs like banks. Individuals can now decide if they wish to share their data which is made available to them at their convenience via the AA system and can also revoke the consent to provide their data to FIU.
• Data transferring process made easier: Since the entire process of data transfer is executed digitally, it increases efficiencies for both the customers and lending institutions. The encrypted data provided by FIPs is transferred by the Account Aggregators and cannot be stored. It can only be accessed by the customers and the endpoint, which is the FIU.
• Easier access to credit: Account Aggregators enable swift access to credit by streamlining data sharing. For first-time borrowers, obtaining a loan becomes easier as AAs provide reliable data like bank statements, helping lenders evaluate their credit profile. This information collateral allows lenders to assess the borrower’s payback potential and make informed decisions even for new to credit customers.
• Effective money management: Account Aggregators are augmenting the quality of the personal finance management space. By collating all the data from different sources into one platform, they are creating a paradigm shift in financial planning and wealth management. As customers can review their spending across accounts and can streamline their expenses, they will be able to adhere to their budgets and achieve their financial goals better.
In today’s credit ecosystem several data bodies like Aadhar eKYC, and CKYC are the owners and providers of data. However, the information that resides with them is the identity data like name, address, age, gender, etc. Account Aggregators are redefining this entire data-transferring process and are reimagining credit access, by providing insightful information on individual customers’ transaction data or bank statements across savings, deposits, and current accounts. All the participants in the ecosystem are complementing one another to achieve the ultimate goal of financial inclusion and provide an overall boost to the credit sector and other financial services by making the customer experience simpler and more personalised.