As most of the services are going digital, the banking have reached to our fingertips. From bill payment to money transfer, the rise of mobile phone technology and digital infrastructure has changed the behavior of customers. The increased penetration of technology and widespread use of smart phones has motivated people to transact online rather than sitting in long queues. The advancement in the software tools, computer hardware and telecommunication have shifted the focus of banks towards the computerization, from data processing to information services. The boom in FinTech innovation and increased internet penetration has brought drastic changes in customer expectations, bringing banking to the palm of customer. The rows upon rows of filling cabinets are going paperless by digital backup systems, brining company’s secure documents to digital platforms without compromising privacy and secrecy of customer’s data. Similarly, the change in the work style to data storage, the innovations that are happening at phenomenal rate in information technologywere like futuristic fantasies to many before they became new realities.
The rise of neo-banking is gaining popularity as neo-banks provide next level of convenience to its customers. They have streamlined cumbersome banking procedures like account opening, money transfer, bill payment, etc. Similarly, developments like CKYC registry and the account aggregator (AA) ecosystem have allowed customers to digitally share their financial identity with institutions of their choice, eliminating the need for physical verification of documents. It wouldn’t be wrong to say that the AA Ecosystem aspires to be a report of a person’s financial health, where users can view their savings, investments, status of loans, credit history, tax history, pensions, insurance details and spending the user wish to share, all on a single platform, in encrypted form.
Account Aggregators Framework
The study commission by NordPress has found that the average number of password for internet users/application has increased, with the global pandemic to blame, as more people seek out new entertainment and services online. Across retail websites, e-mail services, social media handlers, office login user IDs and other services, we are all familiar with the sheer wealth of login details that we have to juggle. The study claims 100 passwords for a person to remember. Although, the number is beyond our imagination yet we cannot deny of having more than a dozen of passwords. The study revealed, the number increased by 25% between 2019 and 2022. In order to get rid of the juggle of passwords, to collect data from multiple data providers, RBI’s wholly-owned subsidiary,Reserve Bank of India Technology Private Limited, came up with the concept of data aggregation of assets and liabilities of a user on single platform called Account Aggregator Ecosystem. The design of account aggregator ecosystem is data blind, on electronic conduct and wholly controlled by the owner of the data.
The regulator of Indian banks, Reserve Bank of India, introduced the Account Aggregator (AA) framework in September, 2021, to make financial data easily accessible via data intermediaries (Account Aggregators). An account aggregator is a non-banking financial company (NBFC), licensed by RBI (NBFC-AA license), which involved in providing services like retrieving or collecting financial information pertaining to financial assets of a customer. The account aggregators perform these function under a contract, in exchange of fee or may be free. Account aggregators will help individuals and small businesses in procuring loans from banks in a hassle-free manner by digitally sharing financial data across institutions. No data sharing is allowed between AA and a lending bank without customer’s consent. The data sharing is voluntary. Number of companies have been granted AA license by RBI (CAMSFinServ, NESL Asset Data Limited, Yodlee Finsoft Private Limited, etc.) and many are in queue to receive principal approval (CRIF Connect Private Limited, PhonePe Technology Private Limited, NSDL E-Governance Account Aggregator Limited, ATPL, DIPL, etc.).
AAs enables seamless encrypted data transfer between FIPs and FIUs, without storing, processing or selling data. The account aggregator framework will help establish trustworthiness and repayment ability of such borrowers through well-defined data source to build lenders trust. As a result, lenders can be more liberal with loan amounts granted to genuine borrowers: new-to-credit who have no credit history or already onboard borrowers who have a good credit history. A bank/NBFC who wants to access the data via account aggregator frame is required to join the network. Eight major banks have joined the account aggregator network that will enable customers easily access and share their financial data. These include SBI, HDFC, ICICI, Axis Bank, IDFC-First Bank, Kotak Mahindra Bank, IndusInd Bank and Federal Bank.
Structure of Account Aggregator Framework
Account Aggregator Framework has a three-tier structure: Financial Information Provider (FIP), Financial Information User (FIU) and Account Aggregator (AA).
Financial Information Providers (FIPs)
Things aren’t quite simple as they appear. The data is not publically traded that can be bought or sold. There are bits of data available with different institutions. To over the hurdle and aggregate the data on a single platform, RBI under the account aggregator framework, gave licenses to those institution to act as FIPs which are registered and regulated by Financial Service Regulators (FSR), like RBI, SEBI, IRDAI and PFRDA.
The FIPs are the institutions that hold data of a user, on his consent share that data, to a data user. The applicant consent is received through a client application, where a customer have hold over sharing specific data and power to revoke that data after sharing. They are the key bearers of data. It may a bank, a non-banking company, asset management company, depository, insurance company, pension funds, etc. The RBI in November 2022, included Goods and service Tax Network (GSTN) in the list of FIPs, under the AA Ecosystem, to facilitate cash flow based lending to MSMEs. . SEBI, in a big move, last year in the month of August joined RBIs account aggregator framework. Financial information here means, information regarding finances, including assets, income, liabilities, net worth, bank balances, financial history, or creditworthiness.
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