Should you worry about data security while sharing financial information via account aggregators?

Account aggregators can now help you package your financial information digitally. This can then be presented to users such as banks after you give your consent.

Your bank account statements, loan details, investments in capital markets, insurance policies and so on can be captured digitally. So, opening a current account or starting a wealth management relationship or even applying for a loan can be done without physical documents. All thanks to the account aggregator framework. You have a digital dashboard through which you can share financial information almost instantly with the service provider of your choice. What’s more, the account aggregator does not store any of this information on its own server – it simply passes it on in encrypted form. The aggregators are apps and seek your permission for sharing information each time you need to do so.

But should you be open to sharing your financial data in this form?

The benefits

It is easier to hand over your life’s savings to your old neighbourhood insurance agent, regardless of his/her credibility than trust a robo-advisory platform. Such a platform is engineered to take objective, informed and customised decisions on your investments.

As the next generation differs in preferences over the earlier ones, account aggregators (AAs) will help the most. They allow a convenient and safe platform for the individual user to seek out financial services with immediate dissemination of information. The information itself is taken from financial information providers or FIPs – usually service providers that a user transacts with. This data is passed on through the AA to financial information users (FIU) after a valid consent is obtained.

This platform can help you verify financial documents when new services are sought – loans, credit cards, account opening etc. It can also help you with personal finances and investment choices as the requisite information can be shared on your spending patterns, savings and existing investments, for valid and relevant advice.

So, let’s say you want to pledge your mutual fund holdings for a loan to finance your business. This information can be sought through the AA interface from the fund house. With your consent, it can be passed on to the bank you want a loan from. The entire transfer of information is encrypted.

This new way of functioning requires you to trust in the system rather than a person.

Also read: Account aggregators go live: Here’s a step-by-step guide to sharing your financial data

The risks

No financial platform is without risk. There is always the risk of hackers getting hold of your data even though AAs don’t store your information. This risk is unlikely to be widespread as the technology behind the AA interface is already robust from a security perspective and in use. The technology is the same as the one used by the Unified Payments Interface or UPI.

It is still unclear as to how grievances will be redressed if things go wrong or there is a misappropriation of personal data and information. However, only regulated entities overseen or registered with RBI, SEBI, IRDAI and PFRDA can use your information. All these entities have processes in place for grievance redressal.

What should you do?

Currently, six account aggregators have been approved by the RBI and, recently, eight large banks, including State Bank of India, have joined the network as FIPs and FIUs. So far, operations are in the testing phase. You can now start using the service for seamlessly transfer of personal financial data and information as and when required.

As things stand now, the benefits outweigh the risks. The convenience is quite apparent enough for you to be ready to get into the AA train. Start with small requirements and, as you get more comfortable, allow information sharing on a larger scale for larger requirements.