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Indian Account Aggregator System and the Role of RBI in AAS

The Reserve Bank of India (RBI) issues licences to organisations called Account Aggregators in India. With the users’ permission, this innovative system aims to compile their financial data in real-time and then give it to financial institutions. It is based on the idea of a Unified Payments Interface^[1] (UPI), which has transformed banking in many ways and is supposed to make bank borrowing simpler.
It is anticipated to fundamentally alter the relationship between lenders and borrowers and democratise lending by giving customers more control. Let’s take a closer look at the Account Aggregator System, its benefits, and the role of RBI in AAS.

What is an Account Aggregator?

An individual can securely and digitally access and share information from one financial institution with which they have an account to any other regulated financial institution in the AA network with the aid of an Account Aggregator (AA), a specific type of RBI-regulated entity (with an NBFC-AA licence).

Without the person’s approval, no data can be shared. There are numerous AAs from which one might select. With granular, step-by-step approval and control for each usage of your data, AA eliminates the lengthy terms and conditions form of “blank cheque” acceptance.

After receiving the consumer’s consent, AAs (AA) will gather and distribute the user’s financial information from a variety of entities hold consumer data called Financial Information Providers (FIPs) to a variety of entities that are requesting consumer data called Financial Information Users (FIUs).

An AA will assist in the information flow in the following ways:

1. In order to obtain the needed financial information, the Financial Information User will ask the AA.
2. The user will be asked for permission by the AA to share financial data with the FIU. Either a web-based client or a mobile app-based client must be used by the AA to communicate with the consumer.
3. If the user agrees, the AA will ask the FIP (in this case, the user’s bank) to provide the financial data.
4. The information will be encrypted and transferred from the FIP to the AA, which will subsequently send it to the FIU.

How will an average person’s financial life be improved by the new Account Aggregator network?

Consumers in India today must deal with a variety of inconveniences related to the financial system, including sharing paperwork, signed and scanned copies of bank statements, running around to notarise or stamp documents, and being required to share your unique username and password in order to reveal your financial history to a third party. All of these would be replaced by the Account Aggregator network’s easy, mobile-based, straightforward, and secure digital data access & sharing method.

One must physically acquire, compile, and distribute data on their own, which is very time-consuming and expensive, in order to obtain financial goods like loans, credit cards, etc. The idea of account aggregation has emerged as a result of the constantly changing consumer demands and expectations.

RBI’s Role in Financial Sector Regulation

The Reserve Bank of India, or RBI, oversees and regulates the nation’s entire financial sector. It is the Indian Central Bank. The RBI’s responsibilities include facilitating money circulation, preventing hyperinflation, defending interest rates, offering banking alternatives, etc. The nation’s currency is printed by RBI. All of the country’s banks are under its control.

The RBI develops several policies, including monetary and fiscal policies. The nation’s financial activities are likewise governed by the RBI. The Central Bank should grant permission for any fintech to operate in the country by developing an advantageous framework for that technology’s operations and performance in the country.

In July 2020, the RBI introduced the OCEN (Open Credit Enablement Network), which provided small enterprises with a simple credit application process. Moreover, AA collaborates with OCEN to make loans easily accessible to people.

Role of RBI in AAS

The Reserve Bank of India, along with other regulators such as the Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDA), and Pension Fund Regulatory and Development Authority (PFRDA), formed the RBI Account Aggregator Framework on the initiative of the Financial Stability and Development Council (FSDC).

Customers’ information can be shared between data producers and data absorbers using the Account Aggregator platform. Lenders or wealth managers may be the data absorbers, and banks, NBFCs, and other financial institutions that store client data may be the data suppliers. The RBI is in charge of the AAs in India, which act as a middleman at the consumers’ request. With the help of the existing digital infrastructure, AA has greatly improved the efficiency and accessibility of financial services like loans and credit facilities.

The RBI has required that the data being transferred cannot be monetised and eventually removed from the site. It is promised that tamper-proof safe data will be produced promptly and affordably and that the loan review procedure will go rapidly so that a consumer can obtain a loan.

Also, a customer can obtain a loan without providing physical collateral by disclosing reliable details about an upcoming invoice or cash flow obtained directly from a government system like the goods and Services Tax (GST) or the government e-Marketplace (GeM).

Benefits of the AA system 

To improve the account aggregator (AA) ecosystem, all of the major public sector banks (PSBs) and private sector banks in the nation have joined the platform, bringing more than one billion accounts to the AA framework. The framework holds enormous benefits for the sector and is set to revolutionise the Indian Fintech environment. Some of the benefits of the Account Aggregator System are discussed below:

• Secure and Safe – The AS structure has stringent privacy and data-sharing rules. The AA system will use secure digital signatures to identify shared data. From the bank to the organisation where a customer is looking for a loan or other financial product, they will be completely encrypted. An AA is data-blind because the data it processes is encrypted and can only be decoded by the FIU that requested the data.
• Single-window approach – Customers can access a variety of financial services from numerous banks through AA System’s unified interface. As the only condition is the customer’s consent, they can select the bank or lender. The consumer has complete control over the data and may even specify a time period during which the bank may access the customer’s data.
• Data streamlining – Financial data is dispersed throughout financial institutions, making it difficult for clients or lenders to retrieve it. With the use of the AA system, a lot of data is collected, centralised, and provided to the particular bank or lender with the consumers’ permission.
• Make Credit Services More Effective – Lenders will be able to process more loan applications more quickly by adhering to the proper procedures and due diligence because of the consented financial data obtained by the AA system.
• More Client Control – The Indian Account Aggregator Framework additionally collects data from cash flow and investment-based inputs, in addition to traditional assets like loans and credit cards. This covers a wide range of topics, including various revenue sources, expenses, bills, receipts, deposits, equity investments, tax returns, etc. The RBI Account Aggregator (AA) architecture makes it simple for customers to interact with their financial service providers. It gives consumers a great deal of flexibility throughout, allowing them to share what they need for as long as they choose. It also enables them to save time and money by streamlining the financial service application process.
• No documentation or KYC – After a customer’s financial institution is registered, they no longer need to provide paperwork or KYC information each time they apply for a loan. The only thing the client needs to do is provide permission to AA, who will gather all the information and deliver it to the bank where the client is submitting a loan application.
• Driving Product Innovation – The AA framework has given financial institutions new chances to provide consumers with value-added services and foster closer relationships with them. Giving them the same easy access to client data as more established, larger companies level the playing field. This offers businesses a significant advantage in creating new goods and services that cater to the wants of consumers today.
• Accessibility – The AA method eliminates the need for mutual data gathering, gathering, and updating, which saves time, enhances coordination and lessens any misunderstandings among banks or clients.

Conclusion

The Account Aggregator framework is similar to UPI. The operation of payment systems has changed as a result of UPI. The Account Aggregator system operates in the same manner but gives people more control over their personal data. You will have access to your financial information with AA. If all the stakeholders make enough efforts, this ground-breaking technology has the potential to build a robust lending ecosystem that will empower India’s small and medium-sized businesses, transform the country into a data-rich nation, and strengthen its digital economy.

Also Read:
All you need to know about Account Aggregator System in India
Eligibility Requirements and Procedure of obtaining NBFC AA License