To help accelerate the transformation of financial services in India through digital services and to build a robust lending environment, several major banks in India have recently introduced a unique Account Aggregator (AA) technology for sharing data. It's believed to change the game for lenders and borrowers and will help to make lending more accessible in a way that puts more control into the consumer's hands. Let's look at the AA system it's impact, advantages, and disadvantages.
Introduction to the Account Aggregator system
The AA system has three key components: Financial Information Provider (FIP) as well as Financial Information User (FIU) and the Account Aggregators. FIU can be described as the lender bank that is seeking access to their customer's or borrower's personal information to assess the creditworthiness of the borrower before lending money to them, FIP on the other side has the essential information about the client that is provided information to FIU. The FIP could be a bank or a Non-Banking Financial company (NBFC) or mutual fund insurance repository, pension fund repository or your personal wealth administrator. Aggregators act as the intermediary, collecting information from FIPs which hold the personal financial information of customers and sharing that information with FIUs, such as lending banks or agencies that offer financial services.
The step-by-step procedure can be described as follows: the steps -
● A person opens a bank account through an account aggregator. They create a funnel to store their financial data by connecting their accounts with banks, which contain all the information
● If the client is applying to obtain a loan, or other financial service from an institution of a certain type then he/she will give the go ahead to the lender who will be able to access their financial information through NBFC-AA.
● If consent is granted After consent is granted, the account aggregator contacts the providers of financial data for permission to gain access to the customer's information.
● When the information is received by the account aggregator lenders are able to review the data and determine the suitability of the borrower, as well as the conditions of the loan.
Benefits of the Account Aggregator system
Infosys President Nandan Nilekani believes that the Account Aggregator (AA) framework could increase the amount of credit available and make it more accessible in India similar to UPI. At the time of the launch of RBI's AA framework, Nilekani stated, "Digital footprints when properly utilized, and facilitated by consumers with their own data can provide a large amount of credit available to small-scale businesses. It could result in the increasing accessibility in credit."
Let's take a look at the advantages of the the AA system
System with a single window that uses Consent methodSystem with a single window that uses Consent method
The AA system allows customers access to numerous financial services offered by a variety of institutions via one platform. Because this is only based with the consent of the customers, they have the ability to decide which financial data to share with the particular lender/bank. The customer is in complete control over their data and is able to set the time period for when the sharing of their data will be available for the bank to withdraw out of the system.
streamlining datastreamlining data
A vast amount of financial information is scattered throughout banks, making it hard for lenders and customers to access. Through AA, large amounts of data are consolidated and put in one location with the permission of the client and then provided to the lender or bank.
Improve the efficiency of financial servicesImprove the efficiency of financial services
The financial information that is accessible through the system of the American Banker will permit lenders to perform an exhaustive review of the borrower's financial background and to process loan applications more quickly, adhering to due process and diligence.
No documents and KYCNo documents and KYC
Secure and safeSecure and safe
The AA framework has strict privacy and data sharing guidelines. The information shared by an AA framework will come with secure digital signatures and will be completely secured from the institution to which the bank from which a client is looking for to obtain a loan or other financial product. A AA is completely blind to data as the data flowing through it is secured and is only processed by the FIU who is seeking the information.
Account aggregator systems are regarded as a game-changer in lending sector. It is thought to be a major step toward bringing open banking across the country and giving millions of customers the ability to share and access their financial information with institutions in a secure and efficient way without compromising privacy or consent. It could help create credit information for both individuals and small-sized businesses, enabling them to get loans and increasing credit access and the availability of data for MSMEs. The system, if properly utilized and managed, could be expanded to include other services soon starting with financial services such as pension and insurance funds and eventually, to improve the accessibility to healthcare.
If all stakeholders are willing to work together to make this technology work, it can build a strong lending ecosystem that will transform India into a data-rich country that can boost its economy through digitalization and facilitate the growth of medium and small-sized businesses in India