Pioneering the integration of Account Aggregator (AA) framework in the Indian lending ecosystem, FinBox, a Bangalore and Gurgaon-based fintech startup recently partnered with Finvu, an RBI-licensed NBFC Account Aggregator to substantially enhance assessment of potential borrowers by amalgamating AA information, credit bureau scores, alternate data, device data, and almost 5,000 other metrics.
Post this, Finbox estimates it will be able to assess and onboard 1 million new loan applicants more accurately in the next quarter, in addition to targeting 6 million extra potential borrowers by deploying its AA ecosystem.
Per Rajat Deshpande, CEO, and Co-Founder, FinBox, “The Account Aggregator framework promises to bring a radical transformation in India’s lending space. It will allow lenders to assess a wider selection of data points to determine a borrower’s creditworthiness, thus bringing underbanked sections of the population into the fold of formal lending. Besides, the ease and security with which it enables data sharing will give the lending industry a major boost, with borrowers becoming more willing to share their data with financial institutions.”But wait, tell me more about the AA system
Ajinkya Kulkarni, CEO, WintWealth, explains this with a simple example.
“Imagine you own a small business, or maybe you work in the unorganised sector. You have a savings account where you deposit some money each month. You make around 2 or 3 payments to pay bills. You can't get a loan as easily because you don't have a credit history. You have income, but your history as a borrower is missing because you have never taken a loan from a bank or NBFC before”.
He continues, “If you can import your data from your bank, you can show that you have enough cash flow to pay back the loan. This system will allow a huge amount of people to access loans at affordable rates. This system can help give this proof to the mass of Indians who need such financial products. This aggregator allows us, as customers, to get value from our data.”
Simply put, AA is a robust data-sharing system that empowers consumers with greater control over their financial data and seamlessly shares the same with financial institutions within the AA network. For starters, eight of India’s leading banks came together to create such an ecosystem.
Remember all those times when asked to perform the cumbersome task of uploading bank statements or other requisite documents, you backed off and instead, chose to drop off from the application? Industry estimates show that you are not alone, 70 percent of individuals follow suit. The AA system is all set to reduce this rate.
Hailed as revolutionary in the field of investing and credit, the AA system is being touted as the first step towards making lending and wealth management a lot faster and cheaper.
The AA, which will essentially be an RBI-regulated entity, will allow customers to avail themselves of various financial services from a host of providers by seamlessly sharing their financial information such as bank account details, mutual fund holdings, etc. with a single, consolidated consent. Not only will the user have the power to decide the scope of information shared, but will also be able to specify the time for which this information can be utilised by the entity.
Customer-centricity is at the core of AA, given that data cannot be shared without the user’s consent. Per Amit Das, CEO, and Co-founder of Algo360, a leading alternate data-based credit assessment platform, “The account aggregator system creates the framework for a very scalable data gateway that enables regulated entities to get verified data. By design, it is digital-first, data first, and scalable. Thus, as it is being said now, AA can do for data what UPI did for payments.
“It can also potentially compress the TAT (Turn around time) and hence, reduce decision-making costs (such as loan approval processes) by days and weeks. Most SME-focused lenders have an end-to-end TAT target of 20 days+ for disbursals. With the improved access to data, the AA framework will ensure better, faster, and more confident underwriting calls, given that the authenticated information is obtained directly from the Financial Information Provider (FIP) and sent to the Financial Information Users (FIUs)”, he elaborates.
Described as an interoperable data blind consent manager, the system currently allows banking transaction data to be shared, across the banks that have gone live on the network, to make accessible all financial data like tax data, pensions data, securities data (mutual funds and brokerage), and insurance data, further expanding even to the healthcare and telecom sector.
Mr . Krishnan Vishwanathan, CEO and Founder, Kissht, concurs, “AA systems can transform credit services by improving efficiencies by providing consensual access to financial information of both individual consumers as well as small enterprises. This will not only help lenders conduct more precise borrower evaluations to determine creditworthiness but will also, enable quicker loan process times while ensuring due diligence and security are given due consideration as well”.
ReservationsHowever, experts are not without their concerns and reservations when it comes to the security and risk management of the system. Das continues, “Despite customer education, people are scared of what they cannot control or what can come across as information risk. While UPI is a transaction with a potential dispute resolution facility, which can help one recover their money, data once lost cannot be recovered. We have not yet heard enough about the security aspects of the AA framework.”
Vishwanathan agrees, “The success of AA will be determined by whether all banks join the system because if it’s not a cohesive collaboration, we run the risk of having incomplete user data which will be counterproductive and of no use to lenders. Also, the extent to which authorised financial information will be shared with credit providers needs to be clarified. All things considered, it's a step in the right direction”, he signs off.