NBFC

How NBFC – Account Aggregators Ease Financial Processes And Protect Privacy?

An account aggregator is a non-banking financial company that conducts business by contractually offering the service of retrieving or gathering financial information pertaining to its customers. India’s major banks like State Bank of India, ICICI Bank, Axis Bank, IDFC First Bank, Kotak Mahindra Bank, HDFC Bank, IndusInd Bank, and Federal Bank have all joined the Account Aggregator (AA) network, allowing users to access and share their financial data with ease. 

What Is An Account Aggregator?

According to the Reserve Bank of India, a non-banking financial company engaged in the business of offering, under a contract, the service of obtaining or collecting financial information relevant to its customer is referred to as Account Aggregators. Additionally, it is involved in consolidating, organizing, and presenting information to the customer or any other user of financial information, as the bank may specify. 

The Financial Stability and Development Council, along with the RBI and other regulatory bodies such as the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority, and the Pension Fund Regulatory and Development Authority (PFRDA), took a joint decision to create the AA framework. The RBI issued the license, and the financial sector will have a large number of AAs. According to the AA framework, customers can decide which financial data they want to share with which organization and receive various financial services from a number of providers on a single portal based on the consent method.

How Do Account Aggregators Work?

The Account Aggregators act as an intermediary to gather and consolidate data from all financial information providers (FIP) that hold users’ personal financial data, such as banks, and share that data with Financial Information Users (FIU), such as lending institutions or wealth management companies that offer financial services. It reduces the need for people to share their passwords, wait in long queues, use internet banking portals, or obtain physical notarization in order to view and share their financial information. A financial tool for secure data transmission under the control of the customer.

The Three-Tier Structure –

• Account Aggregators.
• Financial Information Provider (FIP).
• Financial Information User (FIU).

Customers’ data is held by a FIP, which is the data fiduciary. It can be a bank, NBFC, Mutual Fund, Insurance Repository, or Pension Fund Repository. Data from FIP is consumed by an FIU in order to offer the customer a variety of services. Financial Information User is a lending institution that seeks access to the borrower’s information to ascertain the borrower’s loan eligibility. Here, the bank has a dual role, one as FIP and the other as FIU.

The addition of account aggregators to India’s digital infrastructure is exciting because it will give banks access to verified data and consented data flows. Banks will be able to lower transaction costs as a result, allowing us to provide our customers with lower ticket-size loans and more tailored products and services. Additionally, it will enable us to comply with forthcoming privacy legislation and reduce fraud. 

Account aggregators should guarantee the correct processes are in place for proper client identification rather than supporting customer transactions. Only the customers to whom the information pertains or any other user of financial information who has been given the customer’s approval should receive data from an AA.

As soon as the new framework was unveiled, four AAs – launched their Android applications to serve as consent managers. The RBI has already given the approval for businesses various businesses to launch their account aggregators platforms.

Benefits of Account Aggregators

This structure will assist in gathering and combining all the scattered financial data, making it easier for both individuals and businesses to get credit. The system offers various other services as well, which are as follows:

• During Covid-19, there are limitations on physical interaction, an account aggregator creates secure, digital access to personal data, and it acts as a think tank for the Indian Software Industry. 
• Integrating safe digital signatures and end-to-end encryption for data sharing decreases fraud related to physical data. Customer safety is guaranteed by the account aggregators’ systems with stringent privacy and data-sharing policies.
• Numerous opportunities are made possible by these abilities. For instance, with safe data exchange via AA, “information collateral” (or data on prospective MSME income) can be used to acquire a small formal loan, whereas physical collateral is typically required for an MSME^[1] loan.
• Financial Institutions can easily complete time-consuming documentation when applying for loans repeatedly if it is registered with the AA network. 
• Customers have the choice of what information they have to give because the account aggregator system is based on their consent. The clients have a lot of control over their financial information. Additionally, clients can specify a time period during which the bank will have access to the shared data.

What Data Can Be Shared?

Consumers will have access to financial data, including tax data, pension data, securities data (mutual funds and brokerage), and insurance data. Since iSpirt is developing a consent management architecture that is similar to the account aggregator network and UPI system for the healthcare sector to bring all patient records onto the same network, it is also anticipated that it will expand beyond the financial sector to allow healthcare and telecom data.

In addition to other categories pertaining to banking and investments, there are 19 categories of information that fall under the heading “financial information”. The financial information user should first ask for permission to share such information via any platform or app used by the account aggregators. After it receives such a request from the specific client and after obtaining approval, the aggregator further shares the information. 

Can an Account Aggregator View or Store Data?

Data is encrypted before being sent over to the account aggregators. Only the recipient can decrypt the data because it has been encrypted by the sender. The data of the customer cannot be stored, processed, or sold, and no financial data that the AA has obtained from the financial information provider shall be kept with them. It should not carry out the business of account aggregation through the use of a third-party service provider. The RBI states that the AA shall not have access to the user login credentials of consumers linked to accounts with different FIPs.

How Does NBFC – Account Aggregators Protect Users’ Privacy?

The economy will experience increased motion as interactions like lending and verification become quicker and easier with their aid. The problem with privacy was the main issue with NBFC –AA. How secure was the data which is transmitted using a data manager? More businesses and organizations have started their FIU plan since the proper DEPA (Data Empowerment and Protection Architecture) structure, and the details of how privacy will be maintained were elaborated. The actual trust comes from the fact that none of the NBFC – AAs, even if they collect and transport user data, can violate the user’s privacy. This is due to the following: 

• The precise data to be shared is up to the customer.
• Nothing can be done without the customer’s permission.
• NBFC – AA is not given access to the content.
• The customer is in control of the specified time for the data transfer (be it a week, a month, or the time he or she prefers).
• The transfer takes place directly between FIP and FIU, while NBFC- AA only arranges the transaction for a certain charge or without one.
• Superintendence is provided by the regulator’s oversight.
• With the assurance that the data will be impervious to tampering and that it will expedite the loan appraisal process, the RBI has established standards for the appropriate operation of the account aggregators system in India.
• This platform is data blind as the data travels through it remains encrypted and can be processed only by the institutions that asked for it. The data shared by this platform can be decrypted only by the recipient, which makes this process more secure than sharing paper documents.

Conclusion

Account Aggregators framework is a great initiative that will gather all of the customer’s digital footprints in one location and make it simple for lenders to access them. In addition to putting lenders at a competitive disadvantage, longer loan processing times are one of the main factors influencing client satisfaction. But with the introduction of AA, this might soon be history. While the RBI is open and supportive of innovation, we must keep in mind that there is a need to maintain a balance between innovation and the spirit of the regulatory framework.

Read Our Article: NBFC Registration: A complete Guide