Account Aggregator ecosystem complex, needs time to mature, Sahamati’s BG Mahesh

Sahamati CEO BG Mahesh. Sahamati represents account aggregator companies.

A large section of society continues to take credit at a high interest rate of up to 10 percent a month and it is only when the account aggregator ecosystem can reach them and offer a lower rate will Sahamati’s work be done, CEO BG Mahesh has said.

Sahamati is an industry collective representing account aggregator (AA) companies. AA firms are entities regulated by the Reserve Bank of India that transfer and share financial data of individuals and companies for lending decisions.

“When an auto driver or a street vendor, who is now using UPI to get money from the customer, when they start using AA for their daily loan, it's then I feel my job is done,” Mahesh told Moneycontrol in an interview.

“The idea is to speed up loans to the street vendors and increase the number of people who can actually get the loan using the ecosystem.”

The data made available after a consumer’s consent can be used as a proxy to determine creditworthiness when their credit history is limited. Credit score cannot be an ideal parameter to make a lending decision.

The financial data could be their bank statements, GST data or insurance payments, among other things.

UPI moment still some distance away

Under the AA ecosystem, more than 3.5 lakh new consents are approved daily. The value of loans disbursed through the platform is more than Rs 10,000 crore a month.

The expectation was that AA could be as popular for credit as UPI is for digital payments. Many expected the platform to facilitate over 50 percent of all small-ticket lending to happen through the platform.

AA has been built on the digital public infrastructure (DPI) model, where all ecosystem participants can share and collect data with customers’ consent.

“I want it to be 2 million. I want it to be 5 million. But I would rather go from 0 to 0.5 million or to 1 million slowly to learn where the pitfalls are, where things are and make the foundation strong,” Mahesh said.

“We believe that because of the foundational nature of DPIs, strengthening the groundwork is critical before scale, which is what we are doing at Sahamati. We are building capability that will ensure a healthy scale-up for participants and deliver positive impact for the country," Mahesh added.

UPI could succeed because the National Payments Corporation of India (NPCI) acted as an implementation agency, with power and authority. There is no such organisation to set rules or to make everyone fall in line in the AA ecosystem, say industry executives.

Making payment decisions is easier than asking financial institutions to lend without a solid credit history.

Friction points

The expectation was that several fintechs lending to newer segments with poor credit history would access AA to make decisions. However, that has not been the case, with many continuing to rely on credit scores by agencies such as CIBIL, Experian and CRIF High Mark or sometimes even internal tools for credit assessment.

This will change, but gradually, Mahesh said. “Even entities which were not asking for the bank statement are now asking for the bank statement, saying that because the AA facility is there,” he added.

AA has been facing multiple operational and infrastructural challenges. PhonePe recently surrendered its AA licence, citing no clear advantages of being an ecosystem player.

There are around 18 AA companies and banks and integrating with all these firms is cumbersome. Many standalone AA firms are struggling to sustain as transaction charges decline.

Mahesh admitted that integration complexities for banks were a valid concern. Integrating with each AA was like managing a separate project for banks, involving technical, legal, and compliance work, he added.

To address the concern, Sahamati has launched SahamatiNet, a technology infrastructure layer to simplify integration with banks.

“It is only when the rubber hits the road, you get to know what the friction points are. We heard from AAs that they need help, from the banks that they also require a solution by which this integration becomes easy,” Mahesh said, underscoring the need for collaborative efforts to tackle issues within the AA ecosystem.

On low transaction commission, he said pricing decisions were up to individual AAs and not within Sahamati’s purview.

Sahamati was founded as a non-profit in 2019. In the first three years, it educated financial institutions on the need to be part of the AA ecosystem. Sahamati also plans to apply to be a self-regulatory organisation (SRO) under the RBI.

“If you see now, all the public sector banks and all the top private banks are on this ecosystem for at least two and a half years,” Mahesh said.

There are around 177 Financial Information Providers (FIPs) and there are around 630 Financial Information Users (FIUs), he said. Every month, the number of FIUs is growing between 30 to 35.

According to Mahesh, the progress of AA might be underestimated due to a lack of public visibility.

“And you have to understand that it is a large ecosystem and the complexity and scale of the AA framework, which inherently involves a longer maturation process compared to platforms with simpler interactions. Initially, you will have technical challenges on the scale, on the data quality, the drop-offs, and all of that,” he added.

The organisation sends monthly reports to the RBI and the finance ministry on the progress of the AA ecosystem. “They have been very supportive, including our requests to integrate tax data and other financial data outside of the banking system,” Mahesh said.