Sahamati earlier this month announced that all major private and sector banks were live on the account aggregator (AA) network. It marks a major milestone because this one move brought nearly a billion Indians closer to having better access to a whole host of financial services ranging from credit to investments and more.
This achievement has not come in one fell swoop, it is years of effort on the part of almost every financial regulator in partnership with private stakeholders that has brought us here. The AA framework was conceptualised as a platform to give more control to individuals over their financial information while enabling seamless and secure access to this data for regulated entities within the AA ecosystem.
In simple terms, the AA framework is digital infrastructure like virtual railway lines creating a more connected financial ecosystem with the individual at the centre. The entire flow of information in the AA network is dependent on the individual granting explicit consent to share their financial data for a specific period. The consent can be revoked at any point in time. This design enables endless possibilities for improved financial services and numerous benefits for the individual customers.
Credit
Not only can the AA improve access to credit but also enable cheaper loans. Customers without a formal credit history often find it difficult to get favourable loan terms even though they may have an excellent track record in other aspects such as bill payments. When they approach lenders, customers have to submit a host of documents which can be a cumbersome process.
Through an AA, customers can simply grant access to all the required data to a lender. For lenders, it removes the need to deploy resources towards manually going over physical documents, reducing the cost and time involved in credit assessment and issuing loans.
Wealth management
Just like with the loan application process, customers have to submit a range of documents and information to wealth management companies to avail their services. With the data available through the account aggregator, wealth management firms can make faster and more accurate assessments of a customer’s financial position. This will result in better financial advice for customers.
Personal finance management
Managing your own finances can be a complicated task. Having multiple bank accounts can make it more so. When balances and expenditures are fragmented across different accounts, it can result in an incomplete picture of your overall finances.
Linking multiple bank accounts through the AA provides customers with a comprehensive view of their finances in one place. They get a clear picture of total expenditure and balances which will help in financial planning. If customers choose to share other financial data such as investments, assets and liabilities, they can even get an accurate net worth figure.
Fraud detection and prevention
The scope for financial fraud on unsuspecting customers increases along with the growth in digital payments and other financial services. Currently, banks and financial institutions each have their separate security measures in place that do not necessarily communicate with each other. Through the AA network, a security agency can provide real-time monitoring and fraud prevention services across banks and financial institutions, improving security standards for the sector as a whole.
Data Security
From credit to investment advisory to personal finance management, most financial services require customers to share information. Some service providers rely on less secure methods of data gathering such as screen scraping or reading customer SMS data. These processes are more vulnerable to data leaks and misuse.
The AA framework provides a secure way to share only the required information with the specific regulated entity that the customer grants consent to. When requesting information from a customer, a regulated entity has to mention what kind of data it is seeking, the purpose it will be used for, the period for which the data sharing will be valid, and for how long it will retain the data. The customer can also revoke their consent at any time, halting the data sharing process.
Along with this, the regulations specify that the data has to be end-to-end encrypted and account aggregators, that facilitate the flow of data, cannot store the information to mitigate leakage and misuse.
These are just some of the benefits that the AA enables for close to a billion people and counting. The larger impact for all these individuals will come when these public and private banks integrate with all the account aggregators in the AA ecosystem.
(Sumit Gwalani is co-founder of fintech company Fi Money)
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