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Account Aggregator

What are Account Aggregators and how they will revolutionize India's lending ecosystem

FinBox Team   /    Team    /    2021-09-17

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A loan in five minutes is no more a marketing jingle. With account aggregators in tow, things are going to get faster. Account aggregators in India - essentially consent custodians and parking lots for financial data - will ensure a loan, an investment or a new account goes through without physical documents. The cogwheels turn automatically in the background, with robust security protocols and explicit user consent,  rendering most financial services a matter of a few clicks.    

An account aggregator in India,  registered as a non-banking financing company (NBFC), will allow sharing of financial data between Financial Information Providers (FIPs) and Financial Information Users (FIUs) after due customer consent. This article explains who account aggregators are, their functions, and how they will streamline the credit distribution process.

Who are Account Aggregators?

Account aggregators are an initiative introduced by the Reserve Bank of India (RBI). An early framework was developed and launched in 2016. In 2019, many market-ready solutions were implemented by FinTech players. An account aggregator is usually registered as an NBFC. They facilitate the process of sharing information required by a financial institution, after securing due consent, and typically simplify the processing of a loan, mutual fund, insurance etc.

How Do Account Aggregators Work? 

The function of account aggregators can be confusing to many. Let us consider an example to understand their working better. Consider, you are seeking a loan from a financial institution. The typical process initially starts with you either visiting the bank in person or navigating to the bank’s website.

Either way, the first step would be for you to submit a request for a loan with the bank. After you submit the request, the bank will contact you requesting your financial information, such as salary slips, bank account statements, previous loans, assets, debt, repayment history, and others. Accumulating physical documentation and ensuring that they are up to date can be time-consuming and inconvenient. 

Signing up with an account aggregator will allow you to collate your financial information under one application. You can select the financial data you would like to share with the bank. Once selected, the account aggregator will share the information with the bank or financial institution after acquiring your consent.

The account aggregator will not store any of your data. They only act as a pipeline for your financial data. The flow is maintained from the FIPs to the FIUs. FIPs refer to banks, mutual funds, tax authorities, insurance companies, and others. The users of financial information can vary between wealth advisors, banks, and investment firms.

Key Players in the Account Aggregator Ecosystem

With account aggregators, the classification is made based on the types and applications.

  • Financial Information Providers They act as stewards of user data. They are banks, financial institutions, pension funds, and other sources of personal or business data.

  • Financial Information Users These are banks, NBFC, and lending agencies that receive digitally signed data from FIPs.

  • Tech Service Providers Tech service providers are companies that typically collaborate with FIPs and FIUs and help with early warning monitors, SME scorecards, product design, etc.

  • Certifiers Certifiers typically validate the integrity of FIP or FIU implementation and ensure adherence to rules and technical specifications. 

Thus far, the RBI has confirmed in-principle approval to eight account aggregators for building a data-sharing solution:

  • NESL Asset Data Limited

  • Envestnet (Yodlee Finsoft Private Limited)

  • Visa (Plaid)

  • Finicity

  • MX Technologies Inc.

  • Cookiejar Technologies (Finvu)

  • Perfios Account Aggregation Services Pvt. Ltd.

  • Fintech Products and Solutions India Pvt. Ltd. (onemoney)

  • CAMS Finserv

  • PhonePe Technology Services Private Limited

There are several banks and financial institutions that are in this aggregator ecosystem. The following banks and financial institutions are in different stages of their FIP/FIU implementations.

  • Fi

  • ICICI Bank

  • DMI Finance

  • Bajaj Finserv

  • Federal Bank

  • HDFC Bank

  • IDFC FIRST Bank

  • Axis Bank

  • Kotak Mahindra Bank

  • Indusind Bank

  • Kairos Capital

  • NeoGrowth Credit

  • Union Bank of India

  • State Bank of India

  • LendingKart

How Will the Account Aggregator System Change How Credit is Distributed? 

With aggregators becoming increasingly common, the FinTech landscape is expected to change drastically. Here are some ways in which they can change the financial space.

1. Improved Security and Privacy

One of their main value propositions is the improved data privacy and protection offered. This is backed by the strong rules around the framework of the aggregator. If any organization participates with AAs, they will have to follow these policies in order to maintain trustworthy data sharing. Certain standardized security and privacy best practices such as encryption at source, data masking, explicit content from users are encouraged.

2. Integrations for Financial Players

With time, it will become common for banks and lending institutions to integrate their architecture to make their existing systems compliant. For instance, lending institutions could incorporate transaction-based lending as this would allow banks to receive financial information about customers in a hassle-free manner.

3. Standardized Financial Information

Partnering with account aggregators will standardize financial information across all FinTech players. One of the main problems leading to the misalignment in data that is shared is due to the fact that they are stored in different formats. As they store all financial data in a standardized format, it gets easier and quicker to transfer information and create underwriting algorithms and other mechanisms for monitoring data.

In a Nutshell

With a boom in the number of account aggregators in India entering the FinTech space, the data aspect of FinTech companies will be more secure and standardized. There are a few key players in this space in India while many more players are expected to enter the market in the near future.