Account aggregator is a data empowerment platform, which is expected to revolutionise credit, insurance and investment by making it a lot more effective and efficient reducing information asymmetry. Similar to game changing payment platform UPI, account aggregator will be the cutting edge digital financial infrastructure in the world bringing about structural shift in financial data landscape.
What are Account Aggregators?
According to the Reserve Bank of India, an Account Aggregator is a non-banking financial company engaged in the business of providing, under a contract, the service of retrieving or collecting financial information pertaining to its customer. It is also engaged in consolidating, organising and presenting such information to the customer or any other financial information user as may be specified by the bank.
The AA framework was created through an inter-regulatory decision by RBI and other regulators including Securities and Exchange Board of India, Insurance Regulatory and Development Authority, and Pension Fund Regulatory and Development Authority (PFRDA) through and initiative of the Financial Stability and Development Council (FSDC).
Account Aggregators enable consumers to access and share information securely and digitally amongst financial institutions in the AA network. Data cannot be shared without an explicit consent of the consumer. There will be many AAs a consumer can choose from. AA cannot read, store, process or resell digitally signed or encrypted consumer data. Contrary to the name, they cannot store or aggregate data and create profiles of individual/businesses. The data AAs share is encrypted by the sender and can be decrypted only by the recipient.
Why do we need the account aggregator framework?
Consumers generate a lot of data, but it is not easy to share the data granularly in a trusted manner with the service providers. Also, once the data is shared, consumers do not have control on who uses it, how and why. Therefore, data fetching process should be frictionless and secure. Not more than 13-14% of retail / SME lending happens digitally. There is need for a framework for straight-through data sharing in a standardised format and solve the fundamental mistrust. More so, there is need for a regulated and scalable mechanism to get digital data.
The basic premise for establishing this platform currently is: customer data is highly fragmented and exists in silos in databases of banks, lenders, insurance companies, government bodies and other entities. Account Aggregators enable the data owners to share their data from their financial service providers (FIPs) with financial information users (FIUs). The data is shared in a secure and consented manner. No more running around collecting documents to open accounts, file for taxes, get loans or access other financial products. It is a safe, consent-based framework giving consumers/businesses control over data and quicker access to financial services. More so, access to information is at a much lower cost.
How does it work?
It has a three-tier structure: Account Aggregator (AA), Financial Information Provider (FIP) and Financial Information User (FIU).
- FIP– Financial Information Provider- is the data fiduciary, which holds customer’s data. It can be a bank, NBFC, mutual fund, insurance repository or pension fund repository.
- FIU– Financial Information User- consumes the data from an FIP to provide various financial services to the consumer. An FIU is a lending bank or asset manager that seeks access to the borrower’s data to determine if the borrower qualifies for a loan. Banks play a dual role – as FIP and as FIU.
- AAs enable secure, consented (while protecting user privacy) transfer of financial information transfer pertaining to various accounts such as bank deposits, equity, mutual fund and pension funds to any entity requiring access to such information. There are 19 categories of information that fall under ‘financial information’, besides various other categories relating to banking and investments.
Revenue model for AA
AA provides services of retrieving or collecting financial information pertaining to the financial assets of its customers. AAs will be charging a service fee to financial institutions. Some AAs may charge a small user fee as well.
Players That Benefit from Account Aggregator System
MSMEs and new-to-credit borrowers will be among the major beneficiaries of the AA framework as they lack access to formal credit due to the lack of organized and transparent financial records and credit history.
Using the AA framework, lenders across the spectrum will be able to give credit based on verified data such as GST invoices, bank statements, securities information and other cash flow surrogates, coupled with lower risk of tampering and frauds. The customer acquisition cost could come down dramatically, thereby leading to financial inclusion of small customers as well.
Apart from lending, a recurring consent can enable FIUs to keep an eye on the customer’s financial health/leverage and facilitate debt consolidation. It will also help FIP to cross-sell other products such as deposits, wealth-management and insurance, driving operational efficiency. Retail consumers too will benefit significantly as they will get better lending and deposit rates, access to tailor-made products and an aggregated view of financial accounts, leading to better control on spending and other financial matters.
On what parameters can AAs differentiate amongst themselves
Currently, four account aggregators – Cookiejar Technologies (Finvu), FinSec AA Solutions (OneMoney), CAMS Finserv, and NESL Asset Data Limited (NADL) – with operational licenses to be AAs have launched their apps to act as consent manager. Three more have received in-principle approval from the RBI including PhonePe Technology Services, Yodlee Finsoft, and Perfios Account Aggregation Services and will launch their AA platforms receiving their operating license. In addition, 5-6 more account aggregators have applied. Market is massive and underpenetrated, hence 8- 10 AAs can be easily accommodated. Existing AAs are already processing 20mn transactions a month across 200 lenders. There will be many AAs a consumer can choose from. User experience, the way app looks, data flows would be different across AAs though functionality will be similar. Experience, journey swiftness, resilience and scalability are going to be AA’s key differentiating factors. Consumer can register with an AA through their app or website. AA will provide a handle (like username) which can be use for consent process.
How would AA be different from credit bureaus; will it be complementary or competitive
Function of AA is different compared to credit bureaus. AAs provide infrastructure to share information on customers’ financial assets. Bureau on the other hand shares data on liability of customer (shows loan history and/or a credit score). So dataset that bureaus deals with and what AA facilitates is very different.