For a customer, the AA interface brings in faster access to financial products, digital access to their data and also opens up more options to choose from.
Consider this scenario, you are looking to buy a new house – a dream that you have cherished for long. Your first step is to choose the right home loan from a suitable bank or non-banking finance company (NBFC). In your first meeting with the relationship manager, they hand you a long list of documents you need to furnish to first know your eligibility for the loan and then to finally secure the amount.
The arduous process of gathering each document, getting a statement from banks you have accounts in, is enough to tire anyone planning on getting a loan, insurance or any financial service.
But what if you have the option of sitting in the comfort of your home and granting consent to a third party to digitally share your account statements and other documents with the institution granting you the loan, all without actually seeing your data themselves?
On August 26, digital payments fintech PhonePe announced that it has received in-principle approval from the Reserve Bank of India (RBI) to operate as an Account Aggregator (AA). A few days before that, fintech startup Setu unveiled a sandbox for AAs.
While the AA framework was released by the RBI back in 2016, the buzz around this has been growing louder. According to senior industry sources, 6,000 people have already used AAs to share data and data from 7,000 accounts have been linked on the apps that have gone live since July What exactly is the AA framework and what does it mean for us as consumers of financial services?RBI’S AA FRAMEWORK
Two to three different bank accounts, insurance, mutual fund investments, money in a pension fund -- our data is spread across various banks and other financial service providers. Each of these service providers also has different methods, logins and platforms for us to access our account information.
Account aggregation aims to solve this issue by making sharing of data easy by providing a single platform for exchange of all information. A new class of licensed NBFCs approved by the RBI in 2016, AA is essentially a technology service provider that shares a customer's information with institutions that seek to use this data.
Simply put, it does the job of sharing your data among the respective entities, on your behalf and with your consent. This is done digitally and ensures authenticity of the documents shared as they are sourced directly from the financial entities.
Setu Co-founder and CEO Sahil Kini breaks it down, “An AA will do to your transaction information what the United Payments Interface (UPI) did for payments. For example, when you need a loan, through the AA you can share all your account, income and transaction details at once. The lender will then have more granular information to make a decision.”
BG Mahesh, Co-founder and CEO of Sahamati, a not-for-profit self-organised collective for the AA ecosystem, says that the biggest benefit will be quicker turnaround time to provide an array of financial services.
“It will reduce the time taken to verify documents. For example, bank statements will have digital signatures, ensuring authenticity. Wealth advisors, loan and insurance providers etc. can take swift decisions if comprehensive data is presented to them via an AA,” he explains.
Mahesh adds that AAs will monetise by charging FIUs and/or customers a certain fee. The RBI’s guidelines mandate that the pricing should be transparent and available in the public domain.
FIUs AND FIPs
While the AA will act as an intermediary, where will the information come from? The AA ecosystem also includes Financial Information Providers like banks, AMCs, pension funds etc., and Financial Information Users (FIU), entities that consume this data. FIUs, again, can be a bank giving out a loan, an insurance provider or a wealth manager, among others. FIUs and FIPs must be registered with and regulated by any of the four regulators – RBI, Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDAI), Pension Fund Regulatory and Development Authority (PFRDA).
Any institution cannot choose to be only an information user, they need to register as an FIP first and then an FIU. For example, a bank must first be ready to provide data and then it can access customer data to provide loans.CONSENT AND DATA SECURITY
Most importantly, an AA is data blind. All data being shared via the AA is encrypted and it cannot store or process a user’s data. Meaning, the FIP shares encrypted data with the AA, who then shares it with the FIU. The data is decrypted again only at the FIU’s end.
Rahul Matthan, Partner at law firm Trilegal explains, “Essentially the system is not open to all. The only players that can plug in to the AA framework are regulated entities that already have obligations on keeping data safe. If you talk about the AA themselves, they are data blind. So, this changes nothing in terms of data safety.”
Additionally, AAs can share only the data a user provides them, and only the data the user consents to share. You can choose the accounts you wish to link and select the ones you need to share with an FIU.
Matthan says, “The new framework is plugging only one part (AA) in an existing framework. The existing framework already has restrictions on keeping data safe. If the FIPs and FIUs are secure enough, we should have no problem in the model.”
“I would argue that the process of printing out a bank statement and sharing it is more unsafe. Anyone can take a photocopy of that, for all you know it may be discarded without shredding and will be accessible to anyone,” he adds.
HOW DOES THE FRAMEWORK HELP?
Dr RS Sharma, the CEO of the National Health Authority says that the AA framework will ensure availability of credit on a massive scale. Dr Sharma was previously the Director General and Mission Director of the Unique Identification Authority of India (UIDAI) and helped launch Aadhar.
“There are people who don't have access to credit, because they don't have any credit history. For microcredit, the cost of transaction is quite high currently. AAs will solve both those problems by creating credit history and reducing the cost of transactions,” he says.
He adds, “This can be extended to various sectors like telecom. For example, if a customer can furbish data of regularly paying their phone bills, that data will be worth something while accessing microcredit.”
For the FIUs, the framework clearly enables comprehensive, faster and authentic data access to help in its customer interactions and transactions. For a customer, the AA interface brings in faster access to financial products, digital access to their data and also opens up more options to choose from.
Ritu Bhandari, Head of Research at Smahi Foundation of Policy and Research says that the process will democratise and revolutionise lending.
“Banks may no longer be able to enjoy the privilege of data exclusivity. Customers will be able to share their data easily with other service providers if they choose to,” she says.
Although, Bhandari says that on-boarding of customers onto the ecosystem and scaling up usage will be slow and gradual.
“A customer will use the AA ecosystem only when the need arises. The scale-up will not be as rapid as UPI which could attract customers with cashbacks and ease of swift everyday payments,” she says.WHO’S WHO OF THE AA ECOSYSTEM
There are four licensed AAs functioning currently – CAMSFinServ, Cookiejar Technologies, FinSec AA Technologies and NSEL Asset Data. Apart from PhonePe, the players who have received in-principal approval are Perfios Account Aggregation Svcs and Yodlee Finsoft.
There are 12 institutions in various stages of FIP/FIU implementations namely State Bank of India (SBI), Axis Bank, Bajaj Finserv, DMI Finance, Federal Bank, ICICI Bank, IDFC FIRST Bank, HDFC Bank, Hero FinCorp, Indusind Bank, LendingKart and NeoGrowth Credit.
Technology service providers like Setu, Juspay, Pirimid, to name a few, provide the required software infrastructure support to the system. Bringing the ecosystem together is the DigiSahamati Foundation (Sahamati), a not-for-profit self-organised industry alliance for the AA ecosystem.