How the account aggregator framework will change the Indian fintech scenario

The potential to combine data from multiple sources in one place for optimal use is one of the greatest benefits of the interconnection of digital technologies. Over the years, consumer expectations for speed, safety, security and convenience have changed tremendously as a result of breakthrough technology and the disruption caused by on-demand aggregators and marketplaces in the financial services industry.

Everyone and everything has a significant digital touch these days. But with no structure in place to integrate and share information, this data is spread across silos in banks, NBFCs, EPFO ​​websites, etc. To access financial goods like loans, credit cards, etc., one has to physically collect, compile and distribute data on your own, which is very 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 setup for data producers and data absorbers to share customer information. Banks, NBFCs and other financial organizations that retain customer data may be the data providers and lenders or wealth managers may be data absorbers. The AAs in India are under the control of the RBI and act as an intermediary for customer orders. By using today’s digital infrastructure, AA has made financial services such as loans and credit facilities significantly more flexible and accessible to everyone.

Today, all 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 revolutionize the Indian Fintech ecosystem and host huge benefits for the industry.

Higher control over customers: Along with traditional assets like loans and credit cards, the Indian account aggregator framework also aggregates information from cash flow and investment-based inputs. This covers a variety of topics such as various sources of income, expenses, bills, receipts, deposits, equity investments, tax returns, etc. Customers can communicate with their financial service providers in a user-friendly manner with the RBI Account Aggregator (AA) architecture. It gives customers significant control throughout, allowing them to share only what they need for as long as they choose, and also helps them save time and money by simplifying the process of availing financial services. Furthermore, by using AA systems, a consumer can access multiple financial service providers through a single interface. AA determines which financial data will be collected and communicated with which bank or lender based on the customer’s approval and preferences.

Driving product innovation: For financial institutions, the AA framework has opened up new opportunities to offer 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 assessments, etc., affect how banks and NBFCs extend loans to potential borrowers. Thus, the borrower’s credit history is a decisive factor for the process. As a result, first-time borrowers or those who have taken out personal loans with little or no financial history often find it challenging to obtain reasonable credit through the traditional banking system. The account aggregator architecture, which relies on reliable data sources trusted by lenders, helps determine the creditworthiness and repayment potential of such borrowers. Today, businesses use bank statements to determine the income profile of a potential borrower. Thus, the account aggregator framework provides reliable and relevant data to certain business outcomes and applications.

Increasing MSME lending: Referring to Shaktikanta Das, the Governor of RBI With a vast network of over 6.33 crore enterprises, which together account for 30% of our nominal gross domestic product (GDP) and 48% of exports, MSMEs have emerged up as the growth engine of the economy. Despite this, their ability to expand has been limited by a lack of funding. The estimated current credit deficit for MSMEs is $25 trillion. One of the reasons is that these MSMEs apply for small-ticket loans with short maturities. The unit economy makes it disadvantageous for the bank to provide loans because each step in the process requires significant human involvement, such as document collection and underwriting. As a result, operating costs offset the income from small-ticket loans. With the aggregation model in place, MSME financing will benefit from it as it completely eliminates human intervention and will offer authority and control to the customer. Also, the exposure of their digital payments and account connections to a competitive group of financial service providers vying for their business will benefit micro, small and medium enterprises (MSMEs) seeking loans to grow their businesses and improve operations. cycles.

Secure Data Processing: The AA framework follows 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 wants to borrow money from or buy another financial product from, the data will be fully encrypted. An AA is data blind because all the data it processes is encrypted and can only be decoded by the FIU that requested the data. Data cannot be viewed or stored by AA, which increases 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 revolutionize the way financial services are offered in India.

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