Last month, the Account Aggregator (AA) framework was launched. It is a data-sharing system that will provide easy access to financial data to different parties in the financial ecosystem. AA has come as a boon to individuals and small businesses alike as it is expected to address the credit gap in the country. It will allow lenders to conduct an easy and speedy assessment of the creditworthiness of the borrower. This framework aims to empower Indian citizens and businesses with a single view of their financial data for a better financial future, anywhere, anytime.
Before we delve into the benefits of the system for customers, it is important to know the functioning of the AA framework.
The system has three primary constituents – the Account Aggregator (AA), the Financial Information User (FIU) and the Financial Information Provider (FIP). An AA is a new class of NBFC approved by the Reserve Bank of India (RBI) to manage consent for financial data sharing of users. The AA came into being through an inter-regulatory decision by several regulatory bodies: the RBI, Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDAI), Pension Fund Regulatory and Development Authority (PFRDA) through Financial Stability and Development Council (FSDC).
The FIUs, such as banks, lending agencies, and NBFCs, can receive digitally consented data from Financial Information Providers (FIPs). FIPs are institutions that oversee user data. These are typically the banks, mutual funds, pension funds, and some NBFCs that represent the source of personal or business data which the FIUs can access via requests through an Account Aggregator.
The working of the system is fairly simple. In the AA app, users need to link their FIPs by which a user can share the data from that FIP with an FIU. Currently, only bank accounts can be linked and not all banks are live in the ecosystem yet. Later on, GST data, mutual fund data, etc. are also expected to be included in the same.
While AA will make the process of credit risk assessment easier and simpler for FIUs, below are some ways in which the AA framework is poised to benefit the individual and small business users:
1. Consolidated dashboard: The user can get an aggregate view of all his bank accounts in one place at a click of a button in the personal financial management use case. Not only that, the user will be spared the effort of running around to collect banking documents to get loans or access other financial products.
2. Single digital framework: The Account Aggregators enable the user to share data easily with financial service providers such as lenders, or Portfolio Management Service / Wealth Services providers, by consolidating his/ her own data in one place and by providing a single digital framework to share it in real-time.
3. User controlled data sharing: Data will be shared only on user’s consent. Customer will have access to all consents given. All consent provided through AA are also designed to be revocable. If the individual revokes his consent for his personal or business data, the FIU needs to engage with the borrower offline to find a remedy. Thus, customer truly becomes the owner of his data.
4. Simplistic control: The consent framework is very simple. The user will always know –
a. Who is the data being shared with?
b. What is the purpose of sharing the data?
c. What is the frequency and duration of the consent?
Currently, only banking data can be made available through the AA system but with the imminent integration of investment, insurance and tax-related data, a holistic view of the user’s net worth can be created, which will make credit-decisioning easier for lenders. Thereby, improving credit access to small businesses, who often struggle with documentation while applying for loans.
5. Data security: The framework will also reduce instances of misuse of account-related data shared in physical form. The user can breathe easy as the data shared is encrypted and only decrypted at the receiver’s end. The FIUs will have to strictly adhere with Data Governance guidelines that are currently being framed to prevent misuse of data.
Since the system has been introduced recently, only a limited number of users have created an account aggregator handle as yet. As more users come into the account aggregator ecosystem, more use-cases of instant products and services will get created for the customer. Especially for small businesses that are looking for loans to upgrade their businesses, use of the AA framework will be a huge advantage in increasing their competitiveness. The ultimate beneficiary is the user, and, like the UPI, this account aggregator framework is slated to revolutionise the financial ecosystem in India for many years to come.
The author is Chief Executive Officer at NeoGrowth. Views expressed are that of the author.