Sharing your financial details to avail a loan has gone from being an arduous process of printing and gathering documents to just using an app to share your data within minutes. The financial services industry has touted the Account Aggregator (AA) framework as the UPI moment for lending.
The framework ensures swift data sharing, reduced cost of credit by eliminating physical documents, authenticity for Financial Information Users (FIUs) and will soon extend to avail insurance and mutual funds. It is expected to democratise credit in a country where the credit-to-GDP ratio stands at 56 percent, much below peers.
Industry leaders are hoping that soon even your telecom bill payment data, once linked to AAs, can serve as credit history. As it evolves, the architecture can be extended to various sectors.
What is an account aggregator?
An account aggregator is a dashboard of all your financial data. You can present this dashboard to any entity whose services you need. Say, you want a loan. Your bank will want to check your monthly salary, income-tax returns, account statements and so on. All you need to do is to share your dashboard with the bank, instead having to share attested printouts of various documents.
Accounts linked to AAs jumps from 7,000 to 10,000
The AA ecosystem has been in the spotlight, more so since eight banks joined the network on September 2. With a mega event to announce banks on-boarding the network, AAs have caught the interest of customers and its usage is gaining traction.
Barely two weeks since then, the number of accounts linked to AAs has jumped from 7,000 to 10,000 and a total of 14,000 consent requests have been served. This has been achieved with just five of the on-boarded banks as Financial Information Providers (FIPs) and FIUs currently -- Axis Bank, IndusInd Bank, HDFC Bank, ICICI Bank and Federal Bank.
While the steady rise in numbers with just a handful of banks is reflective of the vast customer interest, ecosystem players see this as just the beginning.
How will it evolve, going forward?
Deepesh Goel, Vice President of Strategy and New Initiatives at Lendingkart, FIU and Financial Information Provide (FIP), believes that as more banks go live, the numbers will rise.
The fintech non-deposit-taking Non-Banking Financial Company (NBFC) has processed close to 3,500 loan requests worth Rs 175 crore through AAs since July this year. The number has increased from 2,500 on September 2.
“The banks which are currently are a little over 30 percent of our customer base. So, the benefits are also restricted to those customers. For AAs to become a game changer, we need more large banks to come on board,” he said.
The ecosystem is keenly waiting for State Bank of India (SBI) to go live. “SBI going live will be crucial because that will encourage other public sector banks to participate. SBI is 20 percent of our customer base. As soon as it goes live, we will be able to serve half our customers through AAs,” Goel added.
Through AAs, Lendingkart is hoping to disburse loans to twice the customers. Goel explained that from the 5 lakh loan applications received by the lender every month, only 1.5 lakh requests are eligible for processing.
“Of these 1.5 lakh, only around 35,000 customers can furnish account details. The rest have no access to electronic statements, net banking etc. Through AAs, we are hoping that more customers can share e-statements, and, hence, we expect to be able to disburse 2x loans,” he said.
But the adoption is expected to be much faster, now that more systems are in place. Munish Bhatia, Co-founder of Finvu Technologies, an AA, said: “Now, it is just a matter of initiating on-boarding of more banks. It will be much quicker now than for the banks that joined earlier.”
Thousands of transactions now
“Currently, we are seeing thousands of transactions happening through AAs in a week. By next fiscal year, we should see millions of transactions being executed via AAs,” he added.
While this is the customer-facing growth potential for the AA ecosystem, the other focus of the ecosystem is to grow its use cases to be able to use more data in financial services.
Srikanth Rajagopalan, Chief Executive Officer of Perfios Account Aggregation Services, said, “At the heart, the AA is just a consent layer. But the value lies in the use cases that a bank or a fintech can build above it.”
“AA is a two-sided ecosystem; one is where the consent manager is doing the invisible plumbing to make a customer’s consent work. But actually, the solution providers, i.e., fintechs themselves, are the ones that provide value for the end consumer. The innovation that is possible is only limited by a developer's imagination,” he added.
Almost all lending solutions built on AAs have been handled by Perfios Software Solutions, Rajagopalan said. Thanks to the services built on AAs, more fintechs will be able to participate and build use cases, he hopes.
RS Sharma, CEO of the National Health Authority and former Chairman of the Telecom Regulatory Authority of India (TRAI), has expressed his views in the past about how data of telephone bill repayment once added on the AA interface can be valuable for those accessing microcredit.
Will it reduce the requirement of credit scores?
Will verified access to a customer’s historic transaction data through AAs reduce the requirement of credit scores and hence credit bureaus?
“It will depend on use cases. For cash flow-based lending, a bureau might provide supplementary information for risk analysis. But maybe for small-ticket-size loans, information from AAs may be enough,” Bhatia said.
“Credit bureaus and AAs will complement each other. While a credit bureau keeps score for someone who has already borrowed, an AA can help in creating a data pool for first-time borrowers with their cash flows, streams of income and expenditure etc. In the absence of an existing credit score, this data is priceless,” Rajagopalan added.
Rajagopalan explained that when a customer’s historic data from a credit bureau is paired with AAs, it will become a powerful tool, providing a granular, data-based approach in predicting future behaviour.
“Credit information bureaus will not go away. But the importance given to them due to the lack of any other data point will keep diminishing. Currently, if you have a score, you get a loan, if you don’t have a score, you don’t get a loan. But now people are looking at more forms of data,” Goel pitched in.