The future of Account Aggregators
Last week in our townhall, the CEO of our company asked if anyone knew what an Account Aggregator is. Except for one or two, no one could actually explain what an Account Aggregator is. In fact, a lot of us haven’t even heard this phrase.
It’s natural, as it’s a relatively new concept. After a successful launch of the UPI framework which has become the center of the digital payment revolution in India, it is believed that the Account Aggregator framework will follow suit in the digital lending space and financial service.
What is an Account Aggregator?
An Account Aggregator in the simplest of terms is a regulated entity that will digitally collate information pertaining to the financial transactions of a customer across different banking & non-banking financial companies (FIP’s) and share it with other financial information users (FIU’s) with consent of the customer to enable seamless processing of loans, issuance of debit/ credit instruments, identity verification, wealth management, etc.,
For example, today if you happen to avail a loan from a different bank which is not your primary bank, you might have to submit numerous documents rights from salary slips to bank statements of last 6 months, Income tax proof, identity proof etc.,
Using an Account Aggregator service you as a customer can provide access to the lender bank to receive these details directly from your existing financial information provider in a seamless and hassle-free manner.
The good part is, you have complete control over the information you share. This means you and only you decide who can access and store your financial information. The Reserve Bank of India has also laid down the rules for AA to ensure security. One important rule is that your financial data has to be end-to-end encrypted and it cannot be stored within the framework. Say for example, you want to open a bank account online and you want to make use of an Account Aggregator to validate your KYC. It’s up to you to allow your existing bank to send the information that you choose to share with your new bank.
Why is there a need for an Account Aggregator?
Today, most lenders asses the creditworthiness of a customer either through the information provided, CIBIL score or the accompanying bank statements.
The major challenge with the current process is that such information provided is not a 100% tamper-proof. CIBIL/Equifax even today faces challenges with incorrect customer data.
The information provided can itself be manipulated all of which leads to a long-drawn process in providing lending services accompanied with ineffective analysis and increased exposure to deliquencies and repayment failures.
Seamless & faster banking service backed with reliable data
Account Aggregator Framework will allow lending service providers to gain seamless access to applicant’s financials and transactions data(with their consent) in a secure and reliable manner.
When lenders integrate with the Account Aggregator ecosystem, they can gain insights to an applicant’s banking pattern, spending patterns, creditworthiness, applicant’s intent and ability to pay and accordingly process applications seamlessly and much quickly. More loan applications can be processed in less time. Addittionaly the data can be used by lenders to manage risks and fraud attempts and make informed decisions.
Personalised financial services
Consumers use various applications to invest in different types of financial assets. Understanding customer’s investing, spending & banking patterns, lenders will be able to provide more personalised and customized financial and banking services.
Imagine not receiving any more of those harrasing sales call for car loans and personal loans.
Improved User Experience
Using the Account Aggregator’s ecosystem, lenders can fetch an applican’ts data in real time which removes the need for the customer to go through the entire process of visiting banks or scanning and uploading documents.
The lenders on the other hand are able to use this data to gain insights into a customer, manage portfolios, underwtite at relatively reduced time offering a seamless and much faster user experience.
The way forward
Account Aggregator seems to be gaining a lot a traction and momentum. Given that the framework is tightly regulated by the RBI and is also available on open source network, a number of service providers have already jumped onto the bandwagon.
If we asses the market, according to 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. There is also an underserved untapped pool of the rural population which is estimated to reach 506 million by 2022 (Source: Statista).
While a number FIP’s and FIU’s have already joined the ecosystem, as more and more users join, more use cases will emerge. It has long way to go but it definitely looks like, it is going to revolutionize the lending sector in the near future by making credit risk assessment more accessible, reliable and cost-effective.
