The potential to combine data from several sources in one location for optimal usage is one of the biggest advantages of the interconnectedness of digital technologies. Over the years, consumer expectations for speed, safety, security, and convenience have changed immensely as a result of cutting-edge technology and the disruption brought about by on-demand aggregators and marketplaces in the financial services industry.
Everyone and everything has a significant digital imprint these days. However, with no structure in place to integrate and share information, this data is dispersed across silos in banks, NBFCs, EPFO websites, etc. To access financial goods such as loans, credit cards, etc., one must physically collect, compile, and distribute data on their own, which is highly time-consuming and expensive. The ever evolving consumer demands and expectations have led to the emergence of the concept of account aggregation.
The Account Aggregator architecture is a set up for data producers and data absorbers to share customer information. Banks, NBFCs, and other financial organisations that retain customer data might be the data suppliers, and lenders or wealth managers could be the data absorbers. The AAs in India are under the control of the RBI and serve as an intermediary at the behest of the customers. Using the current digital infrastructure, AA has made financial services like loans and credit facilities considerably more smooth and available for everyone.
Today, all of the country’s major public sector banks (PSBs) and private sector banks have joined the platform to strengthen the account aggregator (AA) ecosystem, adding more than one billion accounts to the AA framework. The framework is set to revolutionise the Indian Fintech ecosystem and hosts immense benefits for the industry.
Higher Control of Customers: Along with traditional assets like loans and credit cards, the Indian account aggregator framework also gathers information from cash flow and investment-based inputs. This covers a multitude of subjects, such as numerous sources of income, costs, bills, receipts, deposits, equity investments, tax returns, etc. Customers can communicate with their financial service providers in an easy-to-use manner with the RBI Account Aggregator (AA) architecture. It provides customers considerable control throughout, enabling them to share only what they require for as long as they choose and also help them save time and money by simplifying the process of availing of financial service. Moreover, using AA systems, a consumer may access several financial services providers through a single interface. AA determines which financial data to get and communicate with which bank or lender based on the customer’s approval and preference.
Pushing Product Innovation: For financial institutions, the AA framework has opened up new opportunities to provide value-added services to customers and build deeper relationships with them. It levels the playing field by allowing them to access customer data with the same ease as larger incumbents. This gives them a valuable advantage in developing innovative products and services that meet the needs of today’s consumers.
Encouraging First Time Borrowers: Numerous elements, such as regulations, identity verification procedures, credit risk evaluations, etc., influence how banks and NBFCs provide loans to potential borrowers. Thus the borrower’s credit history stands as a crucial factor for the process. As a result, first-time borrowers or those who have taken out personal loans with little to no financial history often find it challenging to obtain affordable credit via the traditional banking system. The account aggregator architecture, which relies on reliable data sources that lenders trust, assists in determining the creditworthiness and payback potential of such borrowers. Today, the business uses bank statements to determine the income profile of a prospective borrower. Thus the account aggregator framework provides reliable and pertinent data to certain business results and use-cases.
Boosting MSME Lending: Citing Shaktikanta Das, the governor of the RBI With a large network of over 6.33 crore businesses, which together account for 30% of our nominal Gross Domestic Product (GDP) and 48% of exports, MSME has emerged as the growth engine of the economy. Despite this their ability to expand has been constrained by a lack of financing availability. The projected current MSME credit deficit is $25 trillion. One of the causes is that these MSME apply for small-ticket loans with short terms. The unit economics make it disadvantageous for the bank to provide loans because each step of the process requires significant human involvement, such as document gathering and underwriting. As a result, the operation costs outweigh the income from small-ticket loans. With the aggregation model in place, MSME financing will benefit from it as it fully eliminates human interference and will offer authority and control to the customer. Moreover, the exposure of their digital payments and account connections to a competitive group of financial service providers fighting for their business will be advantageous for Micro, Small, and Medium-Sized Enterprises (MSMEs) searching for loans to develop their operations and enhance their operating cycles.
Secure data processing: The AA framework adheres to strong data sharing and privacy norms established by the RBI. The AA system uses protected digital signatures to identify shared data. While being sent from the originating bank to the company the consumer is looking to borrow money from or purchase another financial product from, the data will be completely encrypted. An AA is data-blind because all of the data it processes is encrypted and can only be decoded by the FIU that requested the data. Data cannot be seen or saved by the AA thus enhancing the data security.
With the seamless flow of data between financial institutions and service providers there is no doubt that the AA framework will have a profound impact on the Indian fintech landscape. It has the potential to transform the way customers interact with financial services and make India a world leader in digital banking. The launch of the Account Aggregator framework is a major step forward for the Indian Fintech industry and is sure to bring about a revolution in the way financial services are provided in India.
Views expressed above are the author’s own.
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