Account Aggregators: The Next India-First Disruptive and Transformative Ecosystem

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MSME Lending in India

The domain of financial services has experienced a seismic shift with the introduction of sector specific open application programming interfaces (APIs). This marked the start of interconnected digital technologies with the potential to bring together data from multifarious sources in one place for its effective use. With APIs enabling the process of data collection and distribution, the concept of account aggregation was born.

Financial data aggregation is a process that involves the collection, assembly and combination of information from multiple accounts, such as loan/credit accounts, savings and current accounts, credit cards and investment accounts (including mutual funds, demat accounts, brokerage accounts); government accounts such as public provident fund and income tax returns data; and supplementary business or consumer accounts such as those of e-commerce, food or mobility aggregators in a single location. 

Account aggregators are a class of non-banking financial companies (NBFCs), which work as technology intermediaries between companies seeking financial data of customers (financial information users) and those holding that data (financial information providers). FIPs and FIUs include banks, non-bank lenders, insurance companies and mutual funds, who require financial information and documents from the customer 

The introduction of AAs by the RBI in 2016, fixed a long-standing problem of data aggregation and established a framework aimed at seamless, safe and swift data sharing between FIPs and FIUs with the permission of the user whose data is being shared. In summation, under the account aggregator framework, data sharing is enabled by three main entities:

  1. Financial information provider (FIP): Entity that holds your data (Banks, Income tax department, GST, AMCs etc)
  2. Financial information user (FIU): Organisation that requests your data (Fintech app, digital lender etc)
  3. Account aggregator (AA): An RBI licensed entity that enables this data sharing (Mostly an app or a website)

How does it benefit your customer?

Case #1 For an Individual:
Consider this:
A consumer wishes to apply for a personal loan and wants financial planning advice. The consumer will be asked by the Financial Information User i.e the lender to provide documents such as bank statements, income tax returns and salary slips. Similarly, for financial planning advice, the user will be required to provide his bank details, investments in various assets, funds details and insurance purchased, etc.

This could be a tedious task, not to mention redundant to the consumer if they have applied for loans before. With an account aggregator, however, using this application, AAs can source data from multiple Financial Information Providers and relay it via a consent-based mechanism to Financial Information Users. With the account aggregation solutions, the consumer doesn’t have to physically provide hard copies of documents from various entities (FIPs), share confidential login details or visit multiple sites and download and gather information required by lenders and financial planners.

 

Case #2: For a Business:

Though not a mandatory requirement, for smoother functioning, SME financing would benefit by the creation of Account Aggregators. These data intermediaries would act as consent brokers, helping expose a business’ operational data in real-time to lenders. If all of these pieces fall into place, there would emerge the concept of flow-based lending, where an SME borrower’s data would become the collateral for its loans. 

cash flow based lending

With the importance of Account Aggregators growing, a definite challenge to arise will be the architecture of the AA Ecosystem and the intricacies of consented data sharing. Needless to say, IT industries will have to be at the forefront to provide technology and UI/UX design, privacy frameworks, API implementations, cybersecurity, audit and monitoring of licensees and data warehouses. Furthermore, though IT capabilities will be paramount for robust design and implementation, “powerful human-centric design and proficiency in design thinking will play a pivotal role in establishing user engagement and structuring an enormous amount of data for wide-ranging insights” according to PWC.

 

References:

https://www.pwc.in/consulting/financial-services

https://www.rbi.org.in

 

Utkarsh Goswami
Utkarsh leads BFSI Transformation Practice and Heads Business for India & MENA at Kuliza.