The Basics of Account Aggregator Framework
Data is everything and is present everywhere. We are currently producing ever-larger volumes of data, in comparison to the past when we needed a powerful machine to create and store a few megabytes of data. In 2020, every person produced 1.7 MB of data per second, illustrating the speed at which data is created. Also, there are currently 2.5 quintillion bytes of data generated each day globally by Internet users (FYI – there are 18 zeros in a quintillion). The most effective part is that companies have discovered effective methods to use this data to guide their decisions. The majority of market differentiators across sectors are determined by how effectively they utilize data accessible from numerous sources for effective results. Data-driven decision-making is needed in the financial services industry since customers demand speed, security, and convenience. The account aggregation framework enters the scene at this point. Before diving deep into this framework, let’s understand what an account aggregation framework means!
The Account Aggregator Ecosystem
Account aggregation is the procedure of gathering financial information from several sources (i.e., various accounts of an individual) and putting it in one location. It also goes beyond conventional credit ratings of assets, such as credit cards or loans, to encompass cash flow and investments. This is sometimes referred to as financial data aggregation. Expenses, receipts, deposits, tax returns, stock investments, and several other items are among the sources of data.
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Thus, account aggregators (AAs) use technology to facilitate quick and secure data transfer between institutions. You can access a wide range of financial services through AAs for your personal or professional requirements.
The framework calls for the sharing of data between financial information users and financial information providers (FIPs) (FIUs). FIPs are organizations that gather customer data, and FIUs analyze it. The same company could be behind FIP and FIU. For instance, if you open an account with the State Bank of India, SBI will gather information about your transactions and credit history. It functions as a FIP in this fashion. To determine your creditworthiness, etc., SBI will use data if you apply for a loan. It functions as an FIU in this fashion.
To enable the transfer of data between financial information providers (FIPs) and financial information users, the Reserve Bank of India (RBI) will grant licenses to AAs (FIUs). NESL Asset Data, Perfios Account Aggregation Services, Finsec AA Solutions, CAMFinServ, Finvu, and Yodlee Finsoft are among the businesses that already hold the license.
The RBI, the Insurance Regulatory and Development Authority (IRDAI), the Securities and Exchange Board of India (Sebi), and the Pension Fund Regulatory and Development Authority are a few examples of the sectoral regulators with whom FIUs and FIPs must be registered (PFRDA).
Let’s Understand RBI’s Account Aggregator Framework
The Account Aggregator (AA) Framework was introduced in 2021 by the RBI, the country's central bank, to make financial data freely accessible through data intermediaries (account aggregators). These intermediaries are in charge of gathering users' financial information from various organizations that keep customer data (Financial Information Providers, or FIPs), and exchanging it with organizations that need it (Financial Information Users, or FIUs), based on the user's consent. For instance, the lending bank (FIU) will need access to the financial statements that are saved at the user's bank side (FIP) if a person in India wants to apply for a loan so that it may assess the applicant's creditworthiness. This will be relatively simple and hassle-free within the AA framework.
While doing so, our account aggregator system gives end consumers a lot of control over their financial information. It is a forward-thinking move that will benefit consumers in a number of ways through the utilization of their data.
It will let consumers quickly and affordably access a variety of banking services.
It will provide an effective and secure mechanism to transmit financial data, lowering transaction costs and the danger of financial fraud.
Bridging the Financial Literacy Gap with Account Aggregator Framework
People have had reliable financial solutions available to them through formal banking systems for many years. Many initiatives have aided in bringing the financial system to hundreds of millions of unbanked people. A large group of underserved and underbanked customers still exists, despite all efforts.
Personalized banking services
The majority of financial services experts concur that offering financial services to existing clients is straightforward. They have investments, a credit history, recognizable savings and current accounts, and more. Yet, there are still two more concerns to take into account: first, how to provide care for the previously neglected, and second, how to do it in a way that is profitable
The lack of affordable, trustworthy information is one of the barriers to the ecosystem of inclusive financial services. By bridging the gap between financial information providers (FIPs) and users (FIUs) through a carefully controlled customer consent architecture that prioritizes customer interest, the AA Framework has the potential to democratize this data highway.
The AA framework is anticipated to significantly improve efficiency and present a chance to advance the nation's ambition for financial inclusion. It will affect how credit is distributed and make it easier to evaluate and underwrite new-to-credit (NTC) and underbanked borrowers.
How will Account Aggregator Framework Assist Underserved Customers & Lenders?
Despite the expansion of urbanization, McKinsey predicts that by 2025, 63% of India's population will live in rural areas. As cellphone and internet access spread across the nation, rural India is growing more accustomed to digital payment options. Even in remote areas, a number of public and commercial efforts have increased knowledge of and interest in digital banking and payment systems.By integrating AA services into current user interfaces, institutions will be able to provide credit facilities to this underserved market.