Table of contents
India’s account aggregator framework - a brainchild of regulatory bodies across banking, insurance and market investment - aims to streamline financial data flow. Built for loftier aspirations, the account aggregator framework will democratize access to financial services, foster higher innovation and push the envelope on digitalization in banking. It will also help banks adopt a customer-centric approach to products and services, helping them pivot away from a legacy mindset and monolithic business models.
Most importantly, account aggregators will help instil confidence in digital lending - both for the borrower and the lender. By prioritizing user consent, account aggregators dismantle the data hegemony of incumbent large banks. The one with agency here is the user whose financial data is at play - and not the repository of that data.
This makes digital lending fairer, more transparent and user-driven, ensuring long-standing access does not lead to unwarranted customer profiling. For instance, a bank profiles a user based on bank statements, and finds that the user spends large amounts on traveling at the end of each quarter. The bank partners with an airline to offer unsolicited travel discounts to the customer. Data security and privacy are leading concerns when banks open up databases to third parties. Account aggregators institute digital ethics and address concerns around privacy and security by emphasizing time-bound, use-case wise access to data after securing requisite permissions.
For lenders, account aggregators help source data directly from multiple organizations, ensuring a wider variety of parameters are factored in to dilute an instance of fraud. For example, if a borrower has tampered with bank statements, but the income tax filings paint a different picture - the lender has just avoided a classic case of adverse selection. This will help the lender price in the risk better, and perhaps, weed out bad borrowers very early in the funnel when it's cheaper to do so. Calling the right shots while assessing borrowers plays directly into profitability, health of the loan book and customer satisfaction.
The Catch-22: Customer drop offs at document verification stage
Even though digital lending has eliminated the need for physical documents, customers are more likely to abandon a loan application when asked to submit bank statements, even digitally. As per estimates, 70% of loan applications are dropped midway for being cumbersome. Moreover, scanned bank statements have a higher probability of being tampered - since it's difficult to spot data manipulations, even with a screen scraping tool. It would still require a human agent to verify granular details and weed out such instances of fraud - that would ultimately prolong the processing time and spur the good borrowers away.
With account aggregators however, this gap is addressed. Financial information users (FIUs) - such as a lender - can directly source data from financial information providers (FIPs) with account aggregators in the picture. This would radically reduce the possibility of data tampering, and also eliminate the need for the borrower to upload documents on a digital lender’s application. All of this is done with application programming interfaces, or APIs, that act as bridges between the datasets of FIUs and FIPs with account aggregators as data orchestrators.
How FinBox Bank Connect, with Account Aggregator functionality, paves the way for tamper-proof lending
FinBox - an industry leader in credit intelligence technology - classifies data tampering into three categories:
Transactional: FinBox BankConnect - our proprietary intelligent bank statement analyzer - assesses each transactional entry against a variety of parameters to establish the veracity of bank statements. It looks for aberrations such as salary credit, cash deposits or cheque bounce on a bank holiday, an RTGS amount that is lower than the allowed limit and even tax amounts paid in multiples of 100. These are indicators of tampering, which help the bank compute an accurate confidence score in the borrower.
Behavioural: Even if a user has not tampered with the statement, there are behavioral patterns that point to manipulation. FinBox Bank Connect accounts for these by factoring in instances of equal credit and debit amounts, more cash deposits than salary, a higher number of cash transactions or a business account with no credit transactions in a fortnight. All of these are red flags that can help lenders classify borrowers in applicable risk brackets.
Metadata driven: The most obvious (and lousy) markers of meddling are changes in PDF dates that are inconsistent with the date of creation, or the PDF author is a non-trusted author. This is a clear giveaway of a tampered document, and FinBox Bank Connect screens for such discrepancies to alert the lender of a possible fraud.
These measures, when clubbed with our account aggregator functionality, helps lenders get access to varied data sets that present a holistic financial picture, well accounted for possible tampering. It also helps lenders smoothen the document verification process with the use of technology such as optical character recognition and self-learning intelligent algorithms that spot errors when they matter most. FinBox Bank Connect then generates a confidence score - a composite of alternative data sources, credit bureau reports and real-time cash flow behaviour - that helps lenders make informed decisions for even the new-to-credit customers.
To know more about Bank Connect, click here.
The need of the hour will take time to mature
The cogwheels are moving, albeit slowly.
The account aggregator network, touted to be the UPI movement for digital lending, is still in its infancy and will take time to establish roots deep enough to make tangible difference. The framework will take time to onboard fraud-detecting mechanisms, such as the distributed ledger technology, to establish trust and confidence. Something like homomorphic encryption and multi-party computation, widely used in blockchain technology, can help foster security, safety and auditability in the account aggregator framework - making the digital lending pipeline almost impervious to fraud. But, this could be years ahead from now.
As the ecosystem matures and more banks and fintechs join the cohort, lending will see the transformation that has been long due. With 22 million new loan applications every month, the industry is ripe for change that promises speed and scale. Account aggregators, most importantly, will fuel much of the technology prowess and policy reformation that will help lenders attract, assess and approve more prime customers.