The Account Aggregator framework, introduced by the RBI, aims to make financial data more accessible by creating data intermediaries called Account Aggregators (AA) which will collect and share the user’s financial information from a range of entities that hold consumer data called Financial Information Providers (FIPs) to a range of entities that are requesting consumer data called Financial Information Users (FIUs) after obtaining the consent of the consumer.
For example, if a user wishes to apply for a loan, the lender (an FIU) will require access to the previous financial statements of the user – which reside with the user’s Bank (an FIP) – in order to check their creditworthiness. Here’s how an AA will facilitate the flow of information:
- The FIU will request the AA to share the desired financial information.
- The AA will request the user for their consent to share financial information with the FIU. The Account Aggregator must interact with the customer using either a web-based or a mobile app-based client.
- If the user consents, the AA will request the FIP (the User’s bank in this case) to share the financial information.
- The FIP will transfer the information, which will be encrypted, to the AA, which will then transfer it to the FIU.
Roles of each party:
- Banks act as financial data providers. They supply the data required for Reserve bank of India to create a database of the account data and create reliable rankings.
- Lenders act as financial data seekers. The lenders or financial institutions who provide fund to people acts as the seekers or demands the data aggregated by the Reserve bank.
- Non-banking finance corporations act as mediums of communication between banks and lenders and they are the links.
- Third-party service providers work with AAs.
Process
- An individual or business opens an account with an account aggregator. Then, they link their bank accounts, insurance policies, etc. — which are accounts containing the customer’s financial data.
- The customer can provide consent to a lender to access their financial data through the NBFC-AA.
- After consent is provided, the account aggregator seeks permission from the financial data providers to access the customer’s data.
- The data is sent to the account aggregator, which, in turn, empowers lenders to better evaluate the customer’s financial profile and risk associated with providing a loan.
Banks involved at present are:
These are the banks which act as the data providers:
State Bank of India
ICICI Bank
Axis Bank
IDFC First Bank
Kotak Mahindra Bank
HDFC Bank
IndusInd Bank
Federal Bank.
Advantages
- Data scattered around the financial system can be made available under a single database.
- This helps the institutions build a better understanding of potential customers and tailor their services accordingly.
- It also enables the free flow of data between banks and financial service providers.
- Helps financial institutions to make better assessment of creditworthiness of individuals and thus make better loan decisions.
- Helps to eliminate the limitations of credit rating agencies.
- Helpful for creditworthy customers
Disadvantages
- It faces the issue of data privacy.
- It is proposed as a self- Regulator framework, which would be an issue.
- This data could be used for several other purposes.
