Explained: India’s Next Giant Leap In Fintech With Account Aggregator

The success of Jan Dhan Yojana has ensured a bank account for every household. Complemented with an Aadhar number and a mobile phone, the JAM trinity has ushered an age of digital governance in rural areas. In BHIM-UPI, India has a seamless payment ecosystem open to enterprises and entrepreneurs from all socio-economic spectrums.

However, over 350 million bank accounts amount to nothing if there is no growth in lending or credit expansion. The biggest obstacle in the way of lending in India is the paperwork. Even with the JAM trinity at play, the loan process remains cumbersome.

The borrower is required to present various documents like address proof, bank statement, salary slips, income-tax returns, Aadhar or a Permanent Account Number (PAN). The lender --- be they a state-owned or private bank, or a company granting microloans --- has to depend on documentary proofs and has to then verify all the documents presented from various agencies.

All this data in question is available at or from different places. Thus, for both the borrower and the lender, there is additional cost and time in fetching this data.

This has two consequences. One, the loan approval process takes at least five business days, and two, with so much paperwork in question, there is little incentive for private banks to grant loans of less than Rs. 100,000, or focus on real-time lending or credit growth in rural areas.

Similar challenges exist in areas like healthcare and telecom industry where beneficiaries cannot be helped with a personalised package or products.

This is where ’Account Aggregator’ - India's big leap in data sharing and privacy comes into play. Currently, it is being used in FinTech but later HealthTech, Education and other sectors are expected to use Account Aggregators.

In 2016, the Reserve Bank of India had approved a new segment of Non-Banking Financial Corporations to act as account aggregators.

Account Aggregators (AA) are not uncommon in our daily routine. The likes of Zomato and Swiggy are food and delivery aggregators, connecting consenting users sharing their information with service providers, in this case, restaurants and eateries. The likes of Ola and Uber act as transport aggregators, connecting consenting riders sharing their information with drivers, in this case, drivers signed up with Ola, Uber, or both.

What is common for all AAs is a commission. For instance, for every order received via Zomato, the restaurant is required to pay a per cent of the revenue earned from that order to the aggregator. Similarly, drivers with Ola and Uber are paid after deductions by their respective aggregators.

The Account Aggregator, will be playing a similar role, in this case, transferring user’s personal financial data like bank statements, ITRs, Aadhar details, and so on to requesting entities. Consenting users, via a digital app, will be able to share this information with their banks, hospitals, or any relevant agency as per their requirements.

Sahamati has been formed as a non-profit company and will work to increase the adoption of the framework via awareness programmes and workshops with potential AAs and Financial Intelligence Units.

To be headed by BG Mahesh, founder of OneIndia.com, Sahamati will have members from AA organisations, banks, mutual fund groups, stock market, and firms dealing with flow-based lending and wealth and personal finance management, as per a report in The Hindu.

The driving force for the Account Aggregator will be the Data Empowerment and Protection Architecture (DEPA).

Transforming data management into a human-centric system from one driven by an organisation-centric behaviour, DEPA will enable people to have greater control over their data while allowing them to have better access to financial, healthcare, and other relevant products. The access to these products will be in real-time while ensuring the safety, security, and privacy of the user.

Another key component of the Account Aggregator is that it is ‘data-blind’. Unlike the likes of Uber and Ola that store data pertaining to customer’s location, routes, and rides, the account aggregator will not ‘store’ any data. Instead, the data that flows through the Account Aggregator will be encrypted and can only be accessed by entities requesting the data, provided they are a part of the Sahamati ecosystem. This prevents stealing of confidential data and secures users’ data.

For now, six AAs have received an in-principle approval from the RBI. These are NESL Asset Data, CAMS Finserv Financial Services, Cookiejar Technologies Pvt Ltd, FinSec AA Solutions Pvt Ltd, Yodless Finsoft Pvt Ltd, and Jio Information Solutions. By the end of 2019, the companies are expected to roll out their services. The technology framework for the Account Aggregator has been created by iSPIRT.

There are a number of benefits associated with the account aggregator

1. It will immensely benefit the credit bureaus.
2. It will make credit expansion easier, especially for micro, small, and medium enterprises.
3. It will enable the growth of microloans and the companies offering them.
4. Given the time and money that shall be saved with AAs by the banks, the same can be translated into a relatively lower interest rate for borrowers.
5. It will fuel infrastructure savings in the long run, cut down the need for paper trails and verification.
6. And most importantly, it will enable people to access products in real-time, pushing retail consumption forward.

If the late 2010s was about getting a bank account for every household, the early 2020s is going to be about delivering personalised financial services to MSMEs, individuals, rural self-help groups, and other small business groups.

All of this shall be instrumental in creating a $6 trillion economy by 2027. The account aggregator is another correct step in that direction.