CRED, one of the prominent fintech start-ups, is planning to apply for an account aggregator licence with the Reserve Bank of India (RBI), according to a report in the Economic Times. The application will be filed by CRED’s subsidiary, Dreamplug AA Tech Solutions which was incorporated in January 2020, the report added.
“Dreamplug AA has been incorporated to engage as an information technology driven accounts aggregator and undertake the business of providing the service of retrieving and collecting such financial information pertaining to its customers,” CRED was quoted as saying.
The licence, if approved, is likely to benefit CRED as it can leverage the data of thousands of people who use its platform to pay their credit card bills. CRED’s foray into credit lines and P2P lending has allowed it to gather data that can be helpful in identifying patterns in user behaviour. An account aggregator licence can help the company use all of this data to devise a targeted approach for its financial products.
Who is an account aggregator?
The account aggregator system facilitates financial entities to share customer information across various financial services after obtaining consent from users. AA firms are not permitted to undertake any other business other than the business of account aggregation.A technical definition based on RBI guidelines reads:
“Account aggregators enable structured financial data sharing from Financial Information Providers (FIPs) to Financial Information Users (FIUs).”
The financial profile of a single person is spread over multiple interfaces such as bank accounts, equity stocks, government bonds, mutual funds, exchange-traded funds, insurance, etc., making it difficult to keep track of it all. The system was billed as one of the ‘data rails’ in addition to the National Health Stack under the India Stack project which includes Aadhaar, DigiLocker, and others.
Managing consent: AAs maintain a log of consent given by users which are called “consent artefacts”. One can also term them as consent brokers as they mediate information access. The customers have the ability to manage consent at all times and can choose to opt-out of the programme.
Establishing data security: The data covers 18 classes of financial information that have been defined across banking, investments, insurance, and pensions in the RBI guidelines. The AAs are not allowed to store any data and must simply aid the exchange of data. The guidelines also mandate an audit of the internal systems and processes at least once in two years by external auditors.
Regulatory oversight by RBI: AAs will be regulated by RBI, Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI), and Pension Fund Regulatory and Development Authority (PFRDA).
Understanding FIP and FIU: FIP is defined as any entity such as a bank, banking company, non-banking financial company, asset management company, depository, insurance company, insurance repository, etc., which falls under the finance sector. FIU is classified as an entity that is registered and regulated by any financial sector regulator such as RBI, SEBI, IRDAI, PFRDA, etc.
AA ecosystem has been live for more than six months
The ‘Account Aggregator’ (AA) ecosystem went live in September last year at a programme attended by over 900 fin-tech players and observers. The consent-based financial data sharing mechanism had eight banks that constitute 40 percent of India’s bank accounts according to Kamya Chandra, a fellow at iSPIRT (Indian Software Products Industry Round Table, a think tank for the Indian software products industry). The finance minister has urged banks to join the network as soon as possible.
For example, the presence of an account aggregator can help aid the seamless transfer of funds from a fixed deposit held with one bank into a pension scheme, if the user seeks such a transfer.
What are some of its potential use cases?
Lending: The AA system can be used to enable easy disbursal of loans as it would create a unified source of data, eliminating the need to submit paperwork for each aspect of someone’s financial record. MSMEs encounter difficulties in getting credit as their financial information is scattered across various places. “Account Aggregators can act as an intermediary and can consolidate data including cash flow data,” M Rajeshwar Rao, RBI’s Deputy Governor said at the launch event.
- Telecom data-based loans: Talks are also underway to get permission for telecom-data based loans, said Nandan Nilekani, Co-Founder and Chairman of Infosys Technologies Limited. This would mean that someone could provide information about the telecom bills that they have paid and potentially receive a loan for it through the Account aggregator ecosystem.
Using it in healthcare: Health data privacy is a big concern at the NHA, said CEO R S Sharma, referring to the National Digital Health Mission being built by the health authority. On those lines, he said the authority would consider creating ‘Health Account Aggregators’ for the the health sector which will likely see ‘very, very heavy’ use of a similar data-sharing mechanism.
Offering financial advisories: There is potential to use the account aggregator framework for disseminating accurate financial advisories to clients. Previously, giving accurate financial advice was difficult as the advisor could not get access to the complete financial data of a person, said Naveen Kukreja of Paisabazaar.
PhonePe received its nod from the RBI last year
The digital payments company, PhonePe, is another prominent start-up that has received in-principle approval to operate as an Account Aggregator (AA) from the RBI last year. The company had said then that the approval will clear the way for PhonePe to launch its own AA platform but nothing has been announced yet.
The approval is valid for 12 months during which PhonePe is expected to “put in place the technology platform, enter into all other legal documentations required to be ready for operations and report the position of compliance with the terms of grant of in-principle approval to the Bank” as specified by the RBI.
It will only be able to commence operations once the central bank is satisfied with its compliance following which a Certificate of Registration will be issued certifying its role as a Non-Banking Financial Company (NBFC)-Account Aggregator. Once operational, PhonePe will be competing with the likes of licensed account aggregators like CAMSFinServ, Cookiejar Technologies, FinSec AA Technologies and NSEL Asset Data.
Who else is a part of the ecosystem?
The following companies are a part of the AA ecosystem:
- State Bank of India, Federal Bank, Kotak Mahindra Bank, and IDFC First Bank have received approval to become Financial Information Users/Providers.
- HDFC Bank, ICICI Bank, Axis Bank, and IndusInd Bank are already living with it.
- NBFCs Finvu, OneMoney, CAMS Finserv, and NESL have received operational licenses to become AAs.
- Perfios and Yodlee have received in-principle approval to become AAs.
Sahamati, a not-for-profit collective of account aggregators, revealed that more than 90 organisations are looking to be a part of the AA ecosystem. Some of the names include:
- Bajaj Finserv
- NeoGrowth Credit
- Union Bank of India
- Jio Payments Bank
This post is released under a CC-BY-SA 4.0 license. Please feel free to republish on your site, with attribution and a link. Adaptation and rewriting, though allowed, should be true to the original.
Update on March 8, 2022 at 11:55am: This post was updated to reflect the names of organisations that are in the process of joining the AA ecosystem.
- Account Aggregator ecosystem goes live with 8 banks and multiple fin-tech firms
- PhonePe gets RBI nod to become account aggregator, says more details to come
- Onemoney expects six banks to on-board onto Account Aggregator system by March
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