Account Aggregators-New Entrant in Banking Arena
The Reserve Bank of India’s (RBI) Account Aggregator (AA) Framework went live on 2nd September 2021 with eight major banks joining the network which includes State Bank of India (SBI), ICICI Bank, Axis Bank, IDFC First Bank, Kotak Mahindra Bank, HDFC Bank, IndusInd Bank, and Federal Bank. Earlier, Reserve Bank of India (RBI) had already granted licenses to four entities to work as Account Aggregators which included CAMS FinServ, Cookiejar Technologies (Product named Finvu), FinSec AA Solutions Private (OneMoney) and National E-Governance Services Asset Data. Three more have received in-principle approval (PhonePe, Perfios, Yodlee), and some more are in different stages of application.
Let us understand what exactly Account Aggregator Framework is:
As per Master Directions issued by RBI in 2016, Account Aggregator means a non-banking financial company as defined in sub-clause (iii) of clause (f) of section 45-I of the RBI Act that undertakes the business of an account aggregator, for a fee or otherwise. The business of account aggregator is defined as : business of an account aggregator” means the business of providing under a contract, the service of retrieving or collecting information of its customer pertaining to such financial assets, as may be specified by RBI from time to time and consolidating, organizing and presenting such information to the customer or any other person as per the instructions of the customer, provided the consolidated statement/ report of the financial assets of the customers, shall not be the property of the Account Aggregator, for any further use. The consolidated statement/ report will be only for use of the customer. The financial assets as per RBI at present include the following:
- Bank deposits including fixed deposits, saving deposits, recurring deposits and current deposits, b. Deposits with NBFCs
- Structured Investment Product (SIP)
- Commercial Paper (CP)
- Certificate of Deposit (CD)
- Government Securities (Tradable)
- Equity Shares
- Mutual Fund Units
- Indian Depository Receipts
- CIS (Collective Investment Schemes) units
- Alternate Investment Funds (AIF) units
- Insurance Policies
- Balances under the National Pension System (NPS)
- Units of Infrastructure Investment Trusts
- Units of Real Estate Investment Trusts
- Any other asset as may be identified by RBI from time to time;
From the foregoing let us understand the key elements of this framework:
- Account Aggregator is a NBFC registered with RBI for undertaking the business of account aggregator.
- Account Aggregator collects financial information of a person with his consent direct from the institutions where it resides and then shares it onwards with the entity as per authorization of that person. For example, when you apply for loan from a bank, you can ask an account aggregator to collect information about all your bank accounts and other financial assets like your investment in mutual funds, insurance policies etc. from the concerned institutions and share the same with the bank from where you are seeking loan. Since the account aggregator sources the information direct from concerned institutions like your banker, mutual fund company etc. the information given by the account aggregator will be deemed authentic. You as a loan seeker will be benefitted as you need not submit bulky papers to your proposed lender as the system works only electronically. The proposed lender also need not worry about fake documents. Since the system works electronically, it reduces costs and saves time. Of course, account aggregator will charge his fee either from proposed lender or from you as per its business model.
- The account aggregator system has three components: Financial Information User (FIU), Financial Information Provider (FIP) and Account Aggregator (AA). FIU which in the above example is a proposed lender seeks information from FIP which can be bank or Mutual Fund Company and these provide the information and AA is the intermediary acting under the instruction of loan seeker which has signed with AA to fetch the information from FIP and pass it on to FIU.
The whole framework is based on a simple premise that it enables a person to give his informed consent for data sharing for a specific purpose and for a specified time. Of course there is mechanism to redress if your data is shared without your consent. The framework will benefit both to lenders in their decision making as they will get all information of the customer with just a click of the button and with confidences about it authenticity. For the customer, it is very convenient and time saving along with reduced costs. Further, the information moves in a safe environment as it is end to end encrypted.
The eight banks that have joined the network will be operating both as Financial Information Providers (FIPs) and Financial Information Users (FIUs). Together, these banks cover nearly 40 percent of India's banking customers
Account Aggregator (AA) Framework opens a wide field of opportunities for the lenders as the area of financial information can expand a great deal and it can alter the way credit needs are assessed. At present only the four major financial regulators — RBI, Insurance Regulatory and Development Authority (IRDA), Pension Fund Regulatory and Development Authority (PFRDA) and Securities and Exchange Board of India (SEBI) has come together to allow regulated entities under their control to share data with account aggregators after taking user consent. But the future possibilities are vast. Who knows tomorrow it can be about your vaccine details, fee of your school going children or your credit card expense patterns or any other area concerning your finances. Right now we just wait and watch how his framework unfolds.
- Shri S K Bhatia is retired DGM, Union Bank of India.