Will AAs revolutionise India’s financial services?

In accessing financial services or products, individuals are often required to share financial information stored with other entities. The lack of a centralised mechanism to access information makes the process time-consuming and often unreliable. Keeping this in mind, the inter-regulatory Financial Stability and Development Council introduced the concept of account aggregators (AAs) in 2015. AAs were conceptualised as entities that would securely share the financial information of users on a consent-based mechanism. Subsequently, the Reserve Bank of India (RBI) notified the Master Direction on Non-Banking Financial Company (NBFC) – AA, on 2 September 2016 (the AA master direction).

Under the master direction, AAs act as intermediaries that assist with the sharing of financial information among consumers and financial institutions. The AA network is built on three pillars: (1) financial information users (FIUs); (2) financial information providers (FIPs); and (3) the AAs themselves.

FIPs include institutions such as banks, insurance companies, pension funds, etc. FIUs include entities regulated by a financial sector regulator, and require consumer financial information to provide financial services. For instance, an NBFC that is an FIU may rely on certain financial information available with a bank or a mutual fund (an FIP) to assess the creditworthiness of a customer before issuing a loan.

Transfer of information from FIPs to FIUs has traditionally been paper-based. With paperless and secure transmission of information through the AA network, availing of financial services will become seamless. Faster data collection will mean more effective credit checks. It will also make the process of loan disbursement quicker and more data-driven, benefiting both new age and traditional lending channels. Small and medium-sized enterprise financing could see an uptick with ease of access to financial information, furthering financial inclusion in the country.

The transmission of financial information from an FIP to an FIU happens in an end-to-end encrypted manner, such that AAs cannot read the customer information themselves, making them “data blind”. Notably, this protects the interests of customers, as the AAs cannot sell customers’ financial information, or use it for related data analytics. The AA framework is founded on informed user consent, which is enabled by the Ministry of Electronics and Information Technology’s “consent artefact”. This consent artefact allows users granular control over their financial information by enabling them to customise their consent parameters in terms of the duration and purpose for which the information is shared, the frequency with which it can be accessed, and the data fields being shared. Users may revoke their consent at any point, allowing them complete control over the use of their financial information.

Enabling the AA ecosystem

Driving scale for the AA ecosystem requires interoperability and generic technical standards for all participants in the ecosystem. To this end, the RBI and the industry have undertaken second-stage initiatives that assist the implementation of the vision within the AA master direction.

The RBI’s wholly owned subsidiary, Reserve Bank Information Technology (ReBIT), has framed technical specifications for application programming interfaces that can be readily utilised by AAs and financial institutions to enable real-time aggregation functionality of financial information.

In 2019, DigiSahamati Foundation was set up as a not-for-profit company to be a self-organised collective of the AA ecosystem. The foundation aims to ensure that all participants in the ecosystem meet common privacy and security standards, while driving innovation and scale within the network. On 2 September 2021, the AA network went live for consumers across India. Speaking at the launch event, the RBI’s deputy governor remarked that AAs have the potential to strengthen the lending economy and transform digital lending by making it data-driven.

Currently, four NBFC AAs have received an operating licence under the AA master direction – CAMSFinServ, FinVu, OneMoney, and NeSL Asset Data Limited – with three entities receiving in-principal approval from the RBI – PhonePe, Yodlee and Perfios. Major banks in the country, including the State Bank of India, ICICI Bank, Kotak Mahindra Bank and Axis Bank, have joined the AA network as FIPs and FIUs. The AA ecosystem has also seen the participation of digital lending platforms and neo-banks such as Fi, Lendingkart and NeoGrowth Credit.

With the growth of digital lending and other fintech platforms in the country, the last-mile delivery of financial products that traditional channels have struggled with may witness an upsurge driven by the AA ecosystem.

Anu Tiwari and Anindita Bhowmik are partners at Cyril Amarchand Mangaldas. Associates Janak Panicker and Rohil Deshpande also contributed to this article