As the account aggregator ecosystem went live on September 2 following the Reserve Bank of India (RBI) framework, experts said a viable commercial model needs to evolve for the system to become sustainable.
The account aggregator simply put facilitates sharing of financial information in a real-time and data-blind manner between regulated entities. AAs are licensed entities by the RBI to enable the flow of data between Financial Information Providers (FIPs) and Financial Information Users (FIUs). FIPs are institutions which hold customer data and FIUs are entities which consume data to offer better service, underwrite loans, etc. Here, going forward FIPs can be FIUs too.
Why was AA needed?
Before AA came into the picture, entities used a process called screen scraping where third party applications collect screen data and translate it to display on another application. An expert said as there was no uniformity across entities there were inefficiencies and problems whenever a bank would bring changes to their applications.
Additionally, it was sensitive information being viewed through the screen scraping process. AA was the natural solution to it in the form of user consent driven architecture, the expert added.
The AA ecosystem makes it a regulated and legitimate process with all regulated entities involved.
What are the benefits?
AA solves the problem of data scattered across financial institutions and enables it to be brought to one place with customer consent and in a data-blind manner where the AA cannot view or process the data.
“We are bullish on the power and potential of the account aggregator ecosystem as huge varieties of use cases can be built around for consumers,” said Sumit Gwalani, Co-founder, Fi, a neobank platform for working professionals.
He adds: "Our customers now can search for queries from their respective bank accounts in milliseconds which was previously limited to only transactions done on their Fi account. The power of emerging tech combined with account aggregators could get you a combined transaction statement from all your bank accounts and not 5 different bank statements every month."
On the lending side, Lendingkart providing unsecured loans to MSMEs demonstrated a use case by enabling Rs 6,00,000 loan to an enterprise. Harshvardhan Lunia, Founder & CEO at Lendingkart said AA is going to bring massive data transformation. When UPI was launched we didn’t anticipate the revolution it would bring in digital payments, the same will be with AA, he noted.
“Going ahead a large number of SMEs can be reached out without physical branches and it will transform the credit penetration. As we go deeper into this, open banking works wonderfully as India is underserved when it comes to credit and other financial products. A large push will come from awareness and ecosystem-level adoption,” Lunia added.
Similarly, banks are geared up too. Deepak Sharma, President and Chief Digital Officer at Kotak Mahindra Bank said, “AA would enable the ecosystem to create new models and benefit all parties involved. We are one of the early movers to come in both as FIP and FIU and the idea is to build various use cases such as on the asset side, credit underwriting, etc.”
Business model and commercials
Industry experts added that FIPs would need to realise the commercial value in exchange of data being shared. It could possibly depend on volumes, use-cases, if the exchange is recurring or one-time, etc.
RBI Deputy Governor Rajeshwar Rao while speaking at the launch of the account aggregator go-live event on September 2 said, “The desired objective in the case of account aggregator ecosystem will be attained when a large number of customers and information providers (banks) are onboarded on the account aggregator platforms and they are able to get aggregated data in a formed manner desired by users in a completely safe and secured environment."
For this to happen, information providers need to see the value in the framework. This is key to the viable development of the business model of the aggregator ecosystem in India, he added.
Sharma of Kotak Mahindra Bank adds, “For any ecosystem to scale up, everyone – customers, FIUs and FIPs - has to see value in the offering, whether it is enriching customer experience, building a new business model etc. Commercial terms are only one element. It has to evolve to a fair and equitable model so that all parties see value.”
According to Sharma, the two biggest focus areas right now are one: customer awareness and education around the benefits of AA, data consent etc., and secondly, getting the entire ecosystem to come together and participate, which is when we will see the true potential of account aggregator.
The fee arrangement or fee model has to come up from market forces and regulation shouldn’t stifle it, said Mandar Kagade, Founder & Principal at Black Dot Public Policy Advisors. Kagade adds, “The viability is assured, provided parties have flexibility to come around with different fee or pricing structures.”
Data Privacy Laws
User consent and data privacy are key things to the whole framework, said Shilpa Mankar Ahluwalia, Partner at Shardul Amarchand Mangaldas.
Currently, only regulated entities are allowed to access the AA ecosystem. According to Ahluwalia, to make it a truly open banking system, if non-licensed entities have to be allowed it is important to have a data privacy framework in place as the RBI currently looks at safeguarding only financial data within its mandate.