Beyond the financial system: Will AA framework be a game-changer in India?

The Account Aggregator framework is being adopted across sectors, including in verifying the employment status of newly skilled workers

The account aggregator (AA) framework brings to mind images of the financial system, ease of credit, or access to other financial services. But some of the areas that it is being used for in India yield a different picture. 

“AA is cross-sectoral. Within the financial system, it is across banking, capital markets, insurance, and the same architecture applies to all of them. But this infrastructure can be applied beyond financial markets. It can be used for skills, educational records, health records, and so on,” said Nandan Nilekani, non-executive chairman of Infosys and former chairman of UIDAI, at the SamvAAd conference in Mumbai, organised recently by Sahamati, an industry alliance to promote the AA ecosystem in India.

“This cross-sectoral industry approach to data, which allows billions of people and millions of businesses to use their own data to advance their lives, is very important. This generates the concept of digital capital or information collateral,” he added.

The use of the AA framework in areas other than finance is already taking root in the Indian economy. Cases that are being piloted on the framework include an initiative by the Ministry of Rural Development (MoRD) for verification of the financial details of beneficiaries that are skilled under the Deen Dayal Upadhayaya Grameen Kaushalya Yojana (DDU-GKY) programme.

Banking correspondents (BCs) are also using AA for updating passbooks, obviating the need to go to a bank branch. It also allows individuals to monetise their digital data. AA can even be used to solve the issue of unclaimed money, as Sahamati points out. 

Considered to be the UPI moment for lending, the AA framework ensures quick data sharing with the consent of the user and eliminates the need for physical documents. AAs are licensed by the Reserve Bank of India to enable the flow of data between Financial Information Providers (FIPs) and Financial Information Users (FIUs). The user’s consent on what data can be shared is necessary.

The challenge, explained MoRD joint secretary Karma Zimpa Bhutia at the Sahamati conference, is to verify that candidates have been placed authentically in a workplace and have received a real salary. Verification of financial details, such as the salary of trainees for post-impact assessment monitoring, involves manual effort, cost and time at each end for the MoRD, the State Rural Livelihood Mission, and other stakeholders.

“DDU-GKY also works with project implementing agencies (PIAs) which are usually private entities, and they get paid by the ministry only if the candidate is placed and has received a salary for three straight months,” he added.

Proof of placement comprises three requirements — an offer letter from the company, a bank statement or passbook, and a salary slip. But a lot of fraud happens at this level. Many PIAs do not play fair, and there have been cases of false reporting, said Bhutia.

“The AA system helps in time-cycle reduction and ensures the accuracy of the placement document, as the account numbers get verified at the bank level. This also improves the efficiency and scalability of the programme, but most importantly, we can do 100 per cent verification,” he added.

This approach is significant, because over 180 million (or 69 per cent) of the country’s youth aged between 18 and 34 years live in rural areas. Of these, those from poor families with little or no employment number some 55 million.

For this pilot MoRD is working with National Bank for Agriculture and Rural Development (Nabard), D2KTechnologies, Nabard Consultancy Services, and the National Institute of Rural Development and Panchayati Raj.

The ministry wanted a system that would do away with the complexities, and could be used across states and different central government schemes. At present it is piloting AA integration through OTP-assisted Aadhaar via mobile phones and automated Aadhaar-based eKYC.

What AA has been most stringent about is data security. “Nabard is the FIU seeking information, but none of the information is being passed on to the government. The system just gives them a ‘yes’ or ‘no’ answer through the Kaushal Bharat portal. Also, since it’s a consent-based system, the end-beneficiary can always decide the period for which this is shared with the authority,” said Vinay Pandey, head of project management at DDU-GKY.

B G Mahesh, co-founder and CEO of DigiSahamati Foundation, said, “lenders who have been using the AA framework shared that the fraud rate from bank statements used to be anywhere between 1 and 4 per cent, and that it has gone down to zero.”

The other pilot updates bank passbooks using the AA via the BC network. Atyati Technologies, which helps companies to provide financial services for the last mile, has envisaged the use of the BC network for passbook updates using micro-ATMs. “In remote segments there are those who look for services like passbook updates. They do not have access to net banking and travelling for this work is time-consuming,” said Prakash Prabhu, director and CEO, Atyati Technologies.

At present, banks have BCs who only cater to services related to those banks. Atyati has conceived of an app which makes every BC’s computing device an ATM, which allows access of bank statements from any other bank and prints out the statement. 

As for data security, Prabhu said, “the moment the print is taken, the data no longer resides in the BC’s computing device.”

According to Nilekani, whether it is UPI or Aadhaar, most of these services have so far been transactional in nature. But AA brings the power of data to improve lives, he said.

Unlocking data to better lives is crucial for a country like India, where a recently graduated person may have digital capital but may lack financial capital, he added.

Customer adoption of the AA network is currently at a nascent stage, at less than 0.2 per cent of the country’s adult population. But its wide applicability and potential could lead to increased adoption.