Account aggregator system in banking ensures enhanced customer experience with better data security: Experts

The first private sector bank on this list of lenders offering lowest rates on bike loans, Axis Bank offers such loans at an interest rate of nine percent. State-owned Canara Bank, too, offer the same interest rate for bike loans of Rs 1-lakh with repayment tenures of three years. You will have to fork out EMIs of Rs 3,180 per month.

The account aggregator (AA) ecosystem, introduced in September 2021, can ensure better security and stronger protection of banking data while enhancing customers’ experience, say experts. Nine private banks including, HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank, and IndusInd Bank went live on the AA system last year and five public sector banks will join this year.

The AA network is a financial data-sharing system regulated by the Reserve Bank of India (RBI). One of its main features is that data cannot be shared without the consent of the individual concerned.

The finance ministry in the first week of September 2021 said eight of India’s largest banks had introduced the system, even though its concept was approved by the RBI in 2016 itself.

The government when introducing it said the AA system was aimed at helping individuals securely and digitally access the information they have with a financial institution as well as share this information with any other regulated financial institution within the AA network. Banks that have implemented the system say the network has been built with the customer at the center. It empowers customers to effectively manage their data.

“They have the power to decide with whom their data can be shared, for what purpose it can be used, and for what duration it can be retained,” said Deepak Sharma, president and chief digital officer, Kotak Mahindra Bank.

At its launch, the government said the AA system replaces the complex ‘terms and conditions’ form of ‘blank cheque’ acceptance with granular, step-by-step permissions and control each time the customer’s data is used.

“In a regular scenario, there is significant effort involved, wherein the customer has to share their banking data with another bank/financial institution using hard copies or PDF documents. However, with the AA framework, it is very easy for customers to share information either one time or on an ongoing basis for a defined period of time,” said Sameer Shetty, president, and head, of digital business and transformation, Axis Bank.

Moreover, as pointed out by various lenders, the system makes things easier for customers, eliminating duplication and paperwork to offer seamless information to banks.

“The ease of on-boarding and managing consent by customers will ensure large-scale adoption in every nook and corner of the country,” said Murali Ramakrishnan, MD and CEO, South Indian Bank.

The system aims to create a third-party trusted source of information that allows seamless data flow between all players, say experts. “In various cases, once customers’ data is shared with a bank for one purpose, it gets circulated among other departments too. For example, if a customer shares her/his data for a housing loan, it might happen that the vehicle loan department may get access to it. But the AA system prohibits that,” said Nageen Kommu, founder and CEO, Digitap, a tech company providing AI-driven solutions for the banking industry.

Customers can choose which department their data will be shared with and the system minimises the chance of data sharing even within various departments of the same bank. “The system enables customers to offer authentic information in a controlled and managed environment to all the players in the ecosystem, including banks,” said Kunal Jhunjhunwala, founder and MD, Airpay, a payment gateway for banks.

It helps customers take real-time lending decisions in multi-bank personal finance management (PFM) and maintain a consolidated financial dashboard while also enabling wealth assessment and planning, all the while ensuring encryption.

“AA handles the consent management part on behalf of the customer and the data is exchanged only between financial information users (FIU) and financial information providers ensuring that only the right FIU receives the data,” said Sharma.

The privacy aspect is well taken care of by the regulator requiring customer consent. This can pave the road to full-fledged open banking in India going forward, according to Ramakrishnan.

Although widely accepted in the banking sector, several experts asserted that there is still room for improvement for the system. Banks already part of the AA system said more banks joining it will strengthen it further. “In future, the addition of GST (goods and services tax), PF (provident fund) and utility bills information in the AA framework will make it truly transformational,” added Shetty.