NBFC

All you need to know about Account Aggregator System in India

Last year the RBI launched the account aggregator system in India as part of a move aimed at digital transformation in financial services. It provides greater access and control to customers over their financial records. This article seeks to provide complete understanding to its readers about the account aggregator system in India.

Overview of account aggregator system in India

Account aggregator system aims to consolidate financial information of users in real time with their consent and provide the information to financial institutions. It is expected to revolutionize banking and can make bank borrowings easier. For instance if you apply for a personal loan, an account aggregator will collect details about your accounts in financial institutions or other assets and submit this information to the lender. However such details can only be collected by the account aggregator if the customer provides his consent to such data collection. Once it receives the consent, the account aggregator collects data directly from the financial institution to provide it to the lending bank.

Use cases of the account aggregator system in India-

Lending–

The AA system will be used to enable quick and easy disbursal of loans. MSMEs face challenges in getting credit as their financial information is not in consolidated form. Here AAs can be of significant help.

Use in healthcare sector-

The authority can consider creating health account aggregators which will witness a very heavy use of similar data sharing mechanism.

Different components of Account Aggregator system in India

The account aggregator system comprises of certain components called the financial information users, financial information provider and the account aggregators where the financial information users represents the lending bank which seeks customers details and data to know whether the borrower is eligible to borrow money. On the other hand, financial information provider holds the data about the customer. A financial information provider can be a bank, NBFC, insurance repository, pension fund repository etc.

Benefits of the account aggregator system

The functioning of the financial system in India involves undertaking various tasks such as sharing physically signed and scanned copies of bank statement, or sharing personal username and password to provide financial history to a third party etc. With the introduction of account aggregator system it will eliminate such monotonous tasks with a mobile based and digitally safe data access and sharing. 

This system offers various other benefits as well such as follows:

• Consolidation of enormous amount of data

With the size of financial data being enormous, it is scattered all over financial institutions. This makes it difficult for customers or lenders to retrieve such data. The large amount of data is consolidated under the AA framework and is placed under one place and is given to the specific bank or lender.

• Enhances the efficiency of credit services

The consented financial data which is accessed will ensure that lenders can easily make good assessment of the financial capacity and history of the borrower and process more number of loan application faster.

• Based on customer consent

As the account aggregator system is based on the customer’s consent, customers can decide as to what they want to share. The customer exercises significant control over their financial data. Moreover, they can also prescribed a particular time frame up and until which the data sharing can be accessible for the bank.

• Eliminates the need for paperwork

When your financial institution is registered with the AA network, they don’t have to do cumbersome paperwork while applying for loans again and again. All they need to do is give their consent to account aggregators who provide the details to the bank where the customer applies for loan.

• Safe and secure

As the account aggregator system has strict data sharing rules and privacy guidelines, safety is ensured for the customer. The account aggregator is data blind as the data that flows through it remains encrypted and can be processed only by the institution that has asked for it. The data shared by the AAs can be decrypted only by the recipient and this end to end encryption & use of technology like ‘digital signature’ makes this process more secure than sharing paper documents.

Challenges concerning this system

Only a few banks are registered with the AA framework such as the ICICI Bank, Axis Bank, HDFC Bank etc. So as the few banks are left out the financial information that is received will provide a skewed picture. Hence the number of banks join the AA network the more it will be an efficient network.

Further there is a potential risk of data mining by both financial information providers as well as financial information users and a potential abuse of information in case where it is not managed and regulated efficiently. Further there is a lack of clarity on the amount of information that they can share.

What is the role of RBI in this?

The account aggregator system came into existence through the RBI and some other regulators. The RBI^[1] issues license to AAs to provide secure consented data flow while protecting user privacy. RBI believes that the objective of the account aggregator system will be achieved when huge number of customers and information providers like banks and NBFCs are onboarded to the AA system.

RBI has laid down guidelines for the proper functioning of the AA system in India where the data cannot be monetized and deleted and has assured that the data will be tamper proof and it will fast track the loan evaluation process.

Conclusion

The account aggregator system in India is expected to empower individuals to access and share their financial information across financial institutions safely and quickly with due consent. This system can be extended to various other sectors in the future which can transform the functioning of those industries and sectors.

Read our Article:Eligibility Requirements and Procedure of obtaining NBFC AA License