How NBFC-Account Aggregators Ease Financial Processes and Protect Privacy?

Kiran Malik

21 Feb, 2023

In recent years, the Indian financial sector has seen a significant increase in the number of Non-Banking Financial Companies (NBFCs). These organizations have been instrumental in providing financial services^[1] to people who may not have access to traditional banking institutions. However, one of the biggest challenges faced by NBFCs is the lack of a central repository of financial information that they can access to verify the creditworthiness of their customers. This is where NBFC-Account Aggregators come in. In this blog post, we will explore how NBFC-Account Aggregators are easing financial processes and protecting privacy.

What are NBFC-Account Aggregators?

NBFC-Account Aggregators (NBFC-AA) are organizations that provide financial data aggregation services to their customers. These organizations act as intermediaries between various financial institutions and their customers. They provide a platform that allows users to aggregate their financial data from different sources such as banks, credit cards, and mutual funds. This data can then be shared with NBFCs and other financial institutions to facilitate financial transactions.

The Reserve Bank of India (RBI) introduced the concept of NBFC-AA in 2016. The aim was to provide a secure and efficient way for customers to share their financial data with financial institutions. NBFC-AA are regulated by the RBI and are required to comply with strict security standards to ensure the privacy and security of their users’ financial data.

Ease of Financial Processes

One of the main benefits of using an NBFC-Account Aggregator is the ease of financial processes. Traditionally, applying for a loan or a credit card involved submitting a lot of documents to the financial institution. This process was time-consuming and often led to delays in the approval of the application.

With an NBFC-AA, the customer’s financial data is already available on the platform. This data can be shared with the financial institution with just a few clicks. This makes the application process much faster and more efficient. Financial institutions can also use this data to verify the customer’s creditworthiness, which helps in the decision-making process.

For example, a customer who wants to apply for a personal loan can use an NBFC-AA to share their financial data with the NBFC. The NBFC can then use this data to assess the customer’s creditworthiness and decide whether to approve the loan. This process is much faster and more efficient than the traditional method of submitting documents.

Protecting Privacy

Another important benefit of using an NBFC-AA is the protection of privacy. Financial data is highly sensitive information and needs to be protected from unauthorized access. NBFC-AA are regulated by the RBI and are required to comply with strict security standards to ensure the privacy and security of their users’ financial data.

NBFC-AA use advanced encryption and security protocols to protect the data of their users. They also have strict access controls to ensure that only authorized personnel can access the data. This helps to prevent unauthorized access to the data and protect the privacy of the users.

In addition, NBFC-Account Aggregators are required to obtain the consent of the user before sharing their data with any third party. This ensures that the user has complete control over their data and can choose who they want to share it with. The user can also choose to revoke their consent at any time, which prevents their data from being shared further.

Challenges Faced by NBFC-Account Aggregators

1. Lack of awareness among the general public: Many people are not familiar with the concept of NBFC-Account Aggregators and how they can benefit from their services. This lack of awareness can make it challenging for NBFC-Account Aggregators to acquire new customers and gain traction in the market.
2. Reluctance of some financial institutions to share data with third-party organizations: Some financial institutions may be hesitant to share their customers’ financial data with third-party organizations, including NBFC-Account Aggregators. This can create challenges for NBFC-Account Aggregators to provide a comprehensive aggregation service to their customers.
3. Regulatory compliance and the need to adhere to strict security standards: NBFC-Account Aggregators are regulated by the Reserve Bank of India (RBI) and are required to comply with strict security standards to protect the privacy and security of their users’ financial data. This can create challenges for NBFC-Account Aggregators to maintain regulatory compliance and adhere to these security standards.
4. Difficulty in acquiring new customers due to a lack of awareness and trust: As mentioned earlier, the lack of awareness and understanding of the services provided by NBFC-Account Aggregators can create challenges in acquiring new customers. In addition, some users may be hesitant to share their financial data with a third-party organization, which can create trust issues.
5. Difficulty in maintaining data accuracy and consistency across different financial institutions: Aggregating financial data from different sources can be a challenging task, particularly when different institutions use different data formats and standards. Maintaining data accuracy and consistency across different institutions can create challenges for NBFC-Account Aggregators in providing a reliable service to their users.
6. Dependence on the availability and quality of APIs provided by financial institutions: NBFC-Account Aggregators rely on APIs (Application Programming Interfaces) provided by financial institutions to access their users’ financial data. The availability and quality of these APIs can vary across different institutions, creating challenges for NBFC-Account Aggregators to provide a reliable and consistent service to their users.

Conclusion

In conclusion, NBFC-AA are an innovative solution to the challenges faced by the Indian financial sector. They provide a secure and efficient way for customers to share their financial data with financial institutions. NBFC-AA also protect the privacy of their users’ financial data through advanced encryption and security protocols. While there are some challenges faced by NBFC-Account Aggregators, they have the potential to revolutionize the Indian financial sector by making financial processes faster and more efficient. As awareness of NBFC-AA grows, more and more people are likely to benefit from their services.

Also Read:
How NBFC – Account Aggregators Ease Financial Processes And Protect Privacy?
All you need to know about Account Aggregator System in India
Eligibility Requirements and Procedure of obtaining NBFC AA License