Account Aggregator system can democratise credit, bolster lending ecosystem

If the Unified Payments Interface (UPI) changed the way payments are done, the Account Aggregators (AA) system, launched on Thursday, may transform how credit is processed and accessed in the country.

Account aggregators can bolster the lending ecosystem in the country, which can make India data-rich and also boost the digital economy, said M Rajeshwar Rao, deputy governor, Reserve Bank of India (RBI).

Speaking at the Account Aggregator Go-Live event, Rao said the desired objective in the case of this ecosystem would be attained when a large number of customers and information providers are on-boarded, and they are able to get aggregated data in a form and manner they desire.

“What is equally important is that financial information providers (FIPs) and financial information users (FIUs) tap into the vast potential of this innovative platform. The systems will function optimally only when a variety of customer accounts are maintained across different financial entities, cutting across financial sector regulators,” he added.

Eight Indian banks including the country’s largest lender, State Bank of India; the largest private sector lender, HDFC Bank; and other major banks such as ICICI Bank, Axis Bank, Kotak Mahindra, IndusInd, Federal, and IDFC First have joined the AA ecosystem as FIPs.

Four of the eight banks that have joined the AA system have gone live while the others are in the process of doing so. Further, the GSTN network has given in-principle approval to become an FIP on this network.

DIGITAL PUSH

• SBI, HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra, IndusInd, Federal, and IDFC First Bank have joined the AA ecosystem as financial information providers
• Four of the eight banks that have joined the system have gone live while the others are in the process of doing so
• GSTN network has given in-principle approval to become an FIP on this network

Also, many more banks are expected to join the AA ecosystem in the coming months to allow all customers, regardless of bank, to access their data. Currently, four AAs -- Finvu, OneMoney, CAMS Finserv, and NESL -- have got operational approval to start business and these AAs have been working with FIPs and FIUs. Three others have received in-principle approval from the RBI.
 

Further, Nandan Nilekani, chairman, RBI Committee on Deepening Digital Payments (2019), and Volunteer, iSPIRT, said talks were on to get the telecom data on this (AA) network, which meant somebody who had a mobile phone and a good track record of regularly paying prepaid telephone charges could use that data to get a loan.

“The AA system, while initially developed for financial services, actually, transcends that. It is an architecture that will be applied to any sector and, in fact, there is a discussion on how the AA framework can be applied to the health care sector so that people have access to their own health data to get financial services and better health care”, he added. 

An AA enables a free and instant exchange of financial data between FIUs and FIPs with the consent of customers. According to Sahmati, a collective AA ecosystem, an account aggregator is “data-blind” as the data that flows through it is encrypted and can be processed only by the FIU for which the data is intended. Also, an AA does not and cannot store any user’s data. Thus, the potential for leakage and misuse of the user’s data is prevented. So, an AA acts as a conduit between FIUs and FIPs and does not process the data.

Pankaj Jain, additional secretary, ministry of finance, said: “… the intent is to make sure MSMEs get loans without a high transaction cost.”