In the month of September 2021, a financial data-sharing system – Account Aggregator (AA) network was introduced in India.
It is essential that the fintech companies and lenders and the recipients of their financial services i.e. their customers understand how it would provide great possibilities for the sharing of the financial data with consent and providing control over such data sharing.
It is amazing how this would be the starting point towards open banking in India and would enable the customers or individuals to share their financial information securely and with control for access across various financial institutions.
With the Account Aggregator system, lending and financial management can become simpler, faster, and cheaper. It is ‘the most cutting-edge digital financial infrastructure in the world.’
Eight largest banks in India joined the Account Aggregator system including State Bank of India, ICICI Bank, Axis Bank, IDFC First Bank, Kotak Mahindra Bank, HDFC Bank, IndusInd Bank, and Federal Bank.
Let us get all the information about the account aggregator (AA) framework and its working
What is an Account Aggregator (AA) system?
AA is the platform or the system that enables the collection of the financial data of the individuals with their consent to share the same with the financial institutions. The individual can choose between various account aggregators. It would be controlled by the individual at each and every step. It is regulated by RBI and has the NBFC-AA license.
The financial institution can get the proper understanding of the customer and also tailor their services as per the available financial data provided with the customer’s permission through the platform.
Account Aggregator Network
AA Network involves banks, NBFCs, NBFC-AAs, third-party service providers, etc.
- Banks are the financial data providers
- Lenders are the financial data requirers
- NBFC-AAs are the platforms acting as the medium between these two for communication
- The third-party service providers collaborate with account aggregators.
Process of AA Network
The process of the sharing of financial data through AAs is explained as below:
- The potential customer or an individual opens an account with the account aggregator
- He links his bank account, insurance policies, etc for their financial data
- Later, the customer can give consent to any lender for his data access through NBFC-AA
The purpose for sharing such financial data could be for availing borrowing, loan, or any other financial product.
- After this, the account aggregator asks for permission from the financial data providers to access the information of the customer after his consent
- The data is then forwarded to the AA
- AA enables the lenders to access and evaluate the financial profile of the customer
Registration with the Account Aggregator
The customer can register with any AA through the website or mobile app of the AA for data access from the network of any bank. It will provide the handle for the consent process.
The apps with the operational license available are Finvu, OneMoney, CAMS Finserv, and NADL.
PhonePe, Yodlee, and Perfios have received in-principle approval from RBI and may launch apps soon.
The fees of the account aggregator may be free depending on the particular AA. They may be charging the financial institution or may charge a small fee from the user.
Uses and Benefits of Account Aggregator Network
Here are the points that give detailed insights on how the Account Aggregator network is beneficial to the individuals, MSMEs, and the fintech institutions as well.
- The various lengthy process would become hassle-free such as signing, scanning, notarising, stamping, etc of the documents and then sharing or posting them physically. Also, risky tasks such as sharing personal login credentials to your financial data or accounts to a third party.
The mobile-based simple, secure, and digital sharing process would take their place making it easier and more secure for data sharing and giving the scope to the new types of financial products.
- Account Aggregator framework would improve the process for the MSMEs for their needs related to the loans and insurance of the microscale due to its facility of providing the financial data in the most convenient way.
AAs are the best platforms for the MSMEs to help them with more clarity and visibility for their eligibility to get the credit. They face this credit gap collectively and face issues in getting formal credit. According to “Wider Circle” a report in 2019 by PwC and FICCI, 10% of MSMEs have access to formal credit out of 63.3 million MSMEs in India.
This is because their financial data is not available transparently and the AAs framework can help with its accessibility.
This would further make it easier for the lenders to meet the financial needs of the MSMEs.
- Account Aggregator network helps with the sharing of all financial information such as transactions, bank statements, various bank accounts, tax data, pensions data, securities data (mutual funds and brokerage), and insurance data, etc.
This will go far to the accessibility of the healthcare and telecom data from the financial data.
This is better than eKYC or CKYC which only helps with the identity information or the Credit bureau that helps with the loan history and/or credit score.
- If the customer’s bank has joined the AA network then it would also make money management easy due to all the data available in one place for the analysis. For the same reason, it would make the loan evaluation and approval process easier and faster.
Secure financial data sharing with Account Aggregators
The personal data of the individuals cannot be accessed, viewed, used, or monetized by the Account Aggregators, as per the RBI guidelines. They can only carry it from one financial institution to another as per the consent and control of the individual. The end-to-end encrypted data can only be decrypted by the recipient only. The customer or the individual can take back their consent anytime when they do not wish to share their data anymore. Also, the institution can access or use the data only till the time duration for which the consent is provided.