Data is everywhere and data is everything. Unlike the past where we needed a big machine to create and store a few MBs of data, we are now generating ever-larger volumes of data. The speed at which data is created can be realized from the stats that say every individual will generate 1.7 MB of data per second by 2020 (Source). Moreover, Internet users now create 2.5 quintillion bytes of data per day worldwide (FYI – there are 18 zeros in a quintillion). The best part is – businesses have found valuable ways to utilize this data to make better decisions.
Across industries, most market differentiators are defined by how well they use the data available from multiple sources for efficient outcomes. Particularly, in the financial services sector, customer expectations for speed, security, and convenience requires data-driven decision making. This is where the account aggregation framework comes into the picture.
Before we dive deeper into this account aggregator framework, let’s get started with account aggregation.
Account aggregator ecosystem: what is account aggregation?
Account aggregation refers to the process of collecting financial data from multiple sources (i.e., multiple accounts of an individual) into one place. It is also known as financial data aggregation and goes beyond the traditional credit rating assets, such as credit cards or loans to cover cash flow and investments. The sources of data include expenses, receipts, deposits, tax returns, equity investments, and many others.
Also Read: How RBI’s Payments Vision 2025 Report Wants to Innovate Digital Payments in India
What is RBI’s account aggregator framework?
The apex bank in India, RBI introduced the Account Aggregator (AA) Framework in 2021 to make financial data easily accessible via data intermediaries (account aggregators). These intermediaries are responsible to collect users’ financial information from several entities (Financial Information Providers or FIPs) holding customer data and sharing it with the entities requesting data (Financial Information Users or FIUs) based on the user’s consent.
For example, if an individual in India wants to apply for a loan, the lending bank (FIU) will need access to the financial statements which are saved at the user’s bank side (FIP) to check his/her creditworthiness. Under the AA framework, this will be quite easy and hassle-free.
- All the while, this account aggregator framework allows the end users to gain significant control over their financial data. It is a progressive step towards helping consumers benefit from the use of their data with several benefits.
- It will provide an efficient and secure way to share financial data, thereby reducing transaction costs and the risk of financial fraud.
- It will enable the users to get access to various banking services at a reduced cost swiftly.
How does the account aggregator framework bridge the financial literacy gap?
To understand this better, you need to dive deeper into the working of traditional financial environment –
Formal financial systems in India do provide individuals access to robust solutions. Multiple programs have been developed and introduced to bring millions of unbanked citizens into the financial system. However, a sizable pool of underbanked and underserved consumers still exists. It is easy to provide financial services to already included customers as they have recognisable savings accounts, current accounts, investments, and credit history.
However, serving the traditionally underserved consumers is a tough nut to crack, particularly when it is to be done in an economically viable manner. For an all-inclusive financial service ecosystem, the availability of financial information at low cost is yet another bottleneck.
This is what the account aggregator framework aims to target. This framework is expected to improve the efficiency of financial services toward propelling financial inclusion in the country. The easy availability of consumers’ financial data will also impact the credit distribution positively while improving the ability to underwrite new-to-credit and underbanked customers.
How will the AA framework help underserved customers and lenders?
As per the global TransUnion report, more than 160 million Indians lacked access to credit adequately in 2021. Besides, 40.8 million credit-eligible people were unserved, while 16.4 million individuals were credit-underserved.
All these numbers confirm that the credit bureaus have delivered a reliable data baseline to the industry. Here, the Account Aggregator Framework aims to build on that trust through a comprehensive global data rail for the lenders.
On the consumer side, financial education is paramount to ensure adequate levels of consumer protection. With the economic and technological advancements, innovative financial products are available for top tier customers. Improved financial literacy paired with the AA framework agenda will ultimately help customers in understanding the consequences of financial actions.
Beyond the top tiers, the account aggregators in India will also allow lenders to offer credit facilities to the untapped pool of the rural population which is estimated to reach 506 million by 2022 (Source: Statista).
More about the working of RBI’s AA framework
In general, banks and NBFCs follow a predefined process to make credit available to the borrowers. It includes regulation, identity verification, credit risk assessment, and various other steps. Since they also consider the borrower’s credit history, securing affordable credit becomes difficult for first-time borrowers or those with no financial history.
The account aggregator framework will help establish the trustworthiness and repayment ability of such borrowers through well-defined data sources to build lender’s trust. This will be different from relying only on bank statements to understand the income profile of a new borrower.
Recent news around the AA framework
- The Account Aggregator ecosystem has received a major boost as all the PSU banks in India have onboarded the platform. The Finance Minister, Nirmala Sitharaman, reportedly instructed all the public and private banks to go live on the AA framework.
- The bank’s participation in this framework will open a huge pool of customers (1.1 billion accounts) to use the framework and access various financial services.
The way forward
The FIUs’ perspective of the account aggregator framework says that it will make the credit risk assessment easier, more accessible, and cost effective. As more and more users join this ecosystem, even new customer use cases will emerge. Besides individuals, MSMEs looking for loans for business expansion will also benefit from this framework.
FAQs
What is an account aggregator?
An account aggregator is an RBI-regulated entity having an NBFC-AA license that helps individuals in accessing and sharing information digitally from one financial institution to another. The sharing of data happens as per the individual’s consent.
How will the AA network improve an average man’s life?
Currently, justifying a user’s financial history to a third-party institution is quite difficult. It involves sharing bank statements – both physical copies and e-copies, notarising the documents, and much else. The AA network aims to replace all these steps with a simple, digital, data-sharing process.
What kind of data can be shared across the AA network?
Mostly, banking transaction data is available to be shared across the already-live banks on the network.
Will the AA framework affect data privacy?
The account aggregators cannot see the data but only take it from one financial institution to another based on the individual’s consent. Since the data shared is also encrypted, the process is much more secure than sharing physical copies of documents.
What is Sahamati.org?
SAHAMATI is a non-profit, private limited company and a collective of account aggregators in India to strengthen the AA ecosystem.
