Account Aggregators - an analysis

A detailed update on Account Aggregator network

 Account Aggregators - an analysis

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• Going live in September: The Account Aggregator (AA) network of India went live, with the Reserve Bank of India (RBI) having discussed it since 2016. Experts say opening the network to all customers was the first step towards bringing open banking in India and 'empowering' millions of customers to digitally access and share financial data across institutions, securely and efficiently.
• Account Aggregators understood: AAs are licensed non-banking finance companies (NBFCs) that enable instant exchange of financial data between financial information providers (FIPs) and financial information users (FIUs) with the explicit consent of customers. They (AAs) are responsible for providing services that include the transfer — but not storing — of a customer’s data.
• FIPs and FIUs: Let us understand these too.

1. FIPs possess the financial information of a customer. These are banks, mutual funds, pension funds, etc, which represent the “source” of personal or business data that FIUs can access via requests through an AA.
2. FIUs are entities that want to use this data to offer financial products and services to their customers. FIUs have to be registered and regulated by at least one of the regulators — RBI, Insurance Re­gulatory and Development Authority of India (Irdai), Securities and Ex­change Board of India (Sebi), or Pension Fund Regulatory and Development Authority (PRDA). FIUs can be banks, any lending entities, insurance companies, asset management companies, etc.
3. To sustain the ecosystem, an FIU also has to be an FIP.

• Entities in the ecosystem: Four AAs — Finvu, OneMoney, CAMS Finserv, and NADL — got operational approval to start business and were working with FIPs and FIUs. (Perfios Account Aggregation Services, PhonePe Technology Services and Yodlee Finsoft have received in-principle approval from the RBI)

1. Eight banks — State Bank of India, HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank, IndusInd Bank, Federal Bank, and IDFC First Bank — have joined the AA ecosystem as FIPs
2. Four of these eight banks have gone live, while the others are in the process of doing so
3. The Goods and Services Tax Network (or GSTN) is expected to go live on AA soon
4. Perhaps the telecom data too will be on the AA network soon

• Viewing customer data: AA acts as a conduit or a channel between FIUs and FIPs, and remains “data-blind”.

1. Sahamati, an industry alliance for the account aggregator ecosystem, says the data that flows through it is encrypted and can be decrypted and processed only by the FIU for whom the information is intended.
2. RBI’s AA Master Directions state an AA cannot store any user’s data — thus, the potential for leakage and misuse of user data is prevented.
3. This ensures privacy is maintained. What adds confidence to the AA ecosystem is that it has been created by way of an inter-regulatory decision by the RBI, IRDAI, SEBI and PFRDA through the Financial Stability and Development Council (FSDC).

• The goal of AA: It wants to create open banking, to ensure democratisation of credit as consumers would be able to digitally access and share their financial data across financial entities in a secure and efficient manner.

1. iSpirit, a think tank for the Indian software products industry, says AA will reduce the need for individuals to wait in long bank queues, use complicated internet banking portals, share their passwords or seek physical notarisation to access and share their financial documents securely.
2. AAs can bolster the lending ecosystem and make India data-rich and boost digital economy.
3. A use case - If a small and medium-sized enterprise has a digital footprint of the payments made to its vendors, purchases made by consumers, and of the invoices and taxes it has paid, a lender can use that information to make a decision about giving that entity a working capital loan. Used properly, this digital footprint can ensure huge amounts of credit to small businesses and lead to the democratisation of credit.

• At an individual level: A user has to create an account with an AA, by connecting the bank account with the payment player, and also register the mobile number for OTP-based verification. The user account is authenticated by his/her financial institution directly.

1. Today, financial details are sent by consumers to a financial advisor in email as PDF files.
2. These are then scanned and extracted so that they become machine readable; and only then does work begin.
3. With AA, all of this gets automated with no paper trail.

• Security: The RBI says the AA business will be entirely information technology (IT) driven. So AAs should have adequate safeguards built in their IT system to ensure it is protected against unauthorised access, alteration, destruction, disclosure or dissemination of records and data. The FIUs and FIPs, which are the end points in the ecosystem, and are regulated entities and so are AAs.
• Pricing: It is up to the AA who they want to charge — they may charge the FIUs and/or the customer. AAs would require board approved policy for the pricing of these services, and it has to be transparent and must be available in the public domain.
• EXAM QUESTIONS: (1) Explain the working of the Account Aggregator model (AA). Is it safe enough for Indians? (2) The ease needed in making a large number of small-ticket loans is missing in a paper-based system. How does the Account Aggregator model change it? Explain.

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