Interoperability within AA network may reduce drop-offs at lender's end

The RBI's interoperability push will allow account aggregators to work across the network, reducing dependence on bilateral tie-ups and potentially improving customer onboarding for lenders

Account aggregators (AAs) will become interoperable across the industry by December 31, a move expected to sharply reduce customer drop-offs that financial institutions currently face because of patchy bilateral tie-ups, industry executives said.

 

The Reserve Bank of India’s (RBI’s) decision to make AAs interoperable is also expected to ease the burden on financial institutions, which have had to tie up with each aggregator separately until now, and could consequently work with only a handful of them.

 

“The drop-offs will now reduce at the end of FIUs (financial information users) and they can focus more on the product and not worry about onboarding," said BG Mahesh, chief executive officer (CEO) of Sahamati, the RBI-recognised self-regulatory organisation for the AA ecosystem. "Earlier, there was a high chance of drop offs because a particular FIU only worked with a specific AA and in many cases the customer was not signed up with that same AA.”

 

AAs are RBI-licensed entities that move a customer’s financial data from one institution to another, such as from a bank to a lender, but only with the customer’s consent and without being able to read or store it.

 

In the network, entities that hold customer data, such as banks, are called financial information providers (FIPs), and those that request it, such as lenders, are called financial information users (FIUs).

 

The AA network has 17 AAs, 176 FIPs and more than 1,000 FIUs, and handles over 295 million data shares a month, according to Sahamati.

 

“Customer choice gets fixed by making AAs interoperable. FIPs are saved from the trouble of bilaterally integrating with each of the AAs. The AAs will indirectly have access to all FIPs because of the decision,” said Venkatesh Krishnamoorti, managing director of Saafe, an AA.

 

He said five years of working with financial institutions have shown the industry that they prefer not to spread their partnerships widely and usually stop at four or five aggregators. As a result, the business has remained concentrated among the top five players.

 

“For each bank to be working with a new AA, they had to work with the new AA and onboard it, which is a very operational process with some legal steps involved. That discouraged them, especially the large entities, from onboarding all AAs and that translated to an end customer not being able to use their choice of AA,” Mahesh explained.

 

Within the AA ecosystem, when someone applies for a loan, the lender usually wants to see their bank statements.

 

Borrowers have typically had to upload PDF statements, which can be doctored, or share their net banking password so software can read the account, which is risky.

 

The AA network replaces both. With the customer’s consent, the lender requests the data, the bank sends it digitally, and the AA carries it between them.

 

Financial firms that pull customer data through the account aggregator (AA) network will pay a standard fee from November 1, split between the entity that holds the data, the AA that carries it, and Sahamati, Business Standard reported earlier.

 

It is the first common pricing model for the network, which has been under discussion for almost three years. It is also the first time entities holding data, such as banks, will be paid a standard fee for sharing it.