Account Aggregators or AAs are consent managers who help in easy + secure data transactions between Financial Information Providers (FIPs) [example - banks with savings accounts] and Financial Information Users (FIUs) [example - NBFC lenders].

In India, the concept of account aggregators has been introduced to allow individuals and businesses to securely and easily access and manage their financial information from multiple sources through a single interface.

This can help customers save time and effort by providing a convenient way to view and manage their financial information. It can also help financial institutions by providing them with a new way to engage with and retain customers.

It is important to discuss the participants in the AA Ecosystem. The initiative requires coordination between regulated entities operating in silos. Thankfully, the Ministry of Finance, along with Sahamati have managed to bring onboard the relevant regulators, and enable a data revolution in India.

Sahamati is a not-for-profit organization that works to promote innovation, interoperability and data security in India's emerging Account Aggregator ecosystem. It is supported by the Ministry of Finance and various regulatory bodies. The table below explains the participants in the AA ecosystem.

Account Aggregators (”AAs”) are regulated by Reserve Bank of India, and are classified as NBFC-AA by the RBI. Under the RBI Regulations, the application process for obtaining an Account Aggregator License is split into two phases.

Currently, there are six live AAs, and nine companies with in-principle approvals, see complete list here.

Therefore, the presence of 10+ AAs in the marketplace will promote competitiveness between AAs, leading to better outcomes for FIPs, FIUs and Users.

As per Master Direction Non-Banking Financial Company - Account Aggregator (Reserve Bank) Directions, 2016 (”Master Directions”), RBI Regulations (as of November 23, 2022), RBI has included all major financial institutions as FIPs, these include:

While RBI can regulate Account Aggregators and Banks, and issue directions to support AA. RBI does not have jurisdiction over different financial institutions that hold financial information of users. These include depository participants & RTAs, which are regulated by SEBI, Insurance Repositories regulated by IRDAI. Thus, the success of Account Aggregator requires the sectoral regulators, SEBI, PFRDA, IRDAI and RBI to coordinate, and ensure these silos of financial information can be accessed by Account Aggregators.

Banks are the only major class of FIPs live on AA, based on developments detailed below and circulars passed by sectoral regulators, additional FIPs should come online soon. These include, insurance, investment, and tax related data.

IRDAI, vide its Circular issued on November 14, 2022, has asked Insurance Companies and Insurance Repositories to join the AA framework, and start sharing data. Some Insurers such as HDFC Life, Tata AIA Life and ICICI Prudential Life Insurance are already live, and many are in the process of Integration.

The availability of insurance data on Account Aggregators will enable a variety of new use cases. For example, insurers will be able to use aggregated data to build a more holistic view of a customer's risk profile, which can be used to provide more accurate and tailored insurance products. Furthermore, customers will be able to access their insurance policies more quickly and easily, which can help them in cases of emergency or when they need to make a claim.

SEBI, via its Circular issued on August 19, 2022, has asked Asset Management Companies (AMCs) through their Registrar and Transfer Agents (RTAs), and Depositories (NSDL and CSDL) to join the AA framework, and start sharing data.

As data held by RTAs and Depositories is already legally required to be dematerialised, and there exists tools such as Consolidated Mutual Fund Statements, and periodic disclosure of holdings and balances by RTAs and Depositories, will insure implementation of Investment Data should be live in the next year on AA.

Investment data on an Account Aggregator will benefit both consumers and financial service providers.

PFRDA, via its Circular issued on September 30, 2022, has asked Central Record Keeping Agencies (CRAs), which maintain record of pension fund data of each user who subscribes to a NPS scheme, to join the AA framework, and start sharing data.

FIPs (Financial Information Providers) may face several challenges when attempting to go live on an account aggregator ecosystem. Some possible challenges include:

The specific challenges faced by a particular FIP may vary depending on its business model, the nature of the services it provides, and other factors, such as regulations .

As the simplest use case for AA is to enable users to share their of financial statements by users while applying for loans, Banks are the first FIPs to have adopted AA, albeit only in a limited manner, and with glaring operational issues, which, if not fixed, could destroy consumer confidence in the AA ecosystem.

It should come as no surprise that private banks, were the first to go online on AA. After that, due to the efforts of the Finance Minister PSUs came online at the end of July, although, PSUs only went live with NADL, a government owned AA. As of December, 2022 most PSUs are now live on more AAs, and are leading AA Adoption, as performance of public banks is better and prone to less errors/bugs than private banks.

Private banks while first to go live, we believe have not deployed solutions that will scale with increase in requests. Additionally, there seem to be several bugs in their AA integration, which causes data fetch failures, or provides incomplete/ incorrect information. Some common problems we have noticed across banks are:

In order for an account aggregator ecosystem to provide the best experience for users, close technical cooperation between all parties involved is necessary. This is because the account aggregator ecosystem involves multiple different financial institutions and technology providers, each with their own systems and processes. While Sahamati has implemented a Grievance Redressal Portal on Zoho, the adoption and seriousness with which FIPs have been addressing the complaints filed is disheartening. Some numbers shared by Sahamati are below.

*These numbers were shared by Sahamati during their Community Call on November 25, 2022.

However, aware of the implications of poor performance on user outlook and reliance on AA, Sahamati has started to apply more pressure on FIPs to increase effectiveness of Sahamati’s Grievance Redressal Tool. These include:

In order to ensure interoperability, the parties involved in the account aggregator ecosystem must work closely together to identify and resolve any technical issues or bugs that may arise. This may involve regular meetings and discussions between the different parties, as well as the development and implementation of technical standards and protocols to ensure that all systems are able to work together seamlessly, Sahamati has constituted a Working Group on SLAs for the AA ecosystem, and formal adoption of SLAs will improve performance and reliability of the AA ecosystem.

Taking inspiration from NPCI and UPI, where performance metrics of each bank are public, the AA ecosystem will also get a similar platform, from where the performance of each FIP/FIU will be publicly viewable, to increase accountability of participants, and allowing users to pick between the best performing AAs.

While there are several use cases enabled by AA, below we have discussed two use cases that have been implemented by FIUs and are live today.

Under the traditional model, the lender relies on credit scores and bank statements provided by a customer. Credit scores only take into account the past credit behaviour of a customer, and the scope is limited. However, the traditional model poses two problems:

Several lenders such as Bank of Baroda, Axis Bank and Navi, have already integrated AAs to offer a digital lending process. With the inclusion of GSTN as a FIP, I believe AAs will also lead to increased adoption of cash flow-based financing for MSMEs and embedded finance for consumer brands and will lead to new innovative products in the BNPL sector.

AAs will also permit new-age personal finance management tools, AA can aggregate different bank accounts, demat accounts etc. them into one PFM app to provide a single, holistic view where they can access all their financial data, which will include their SEBI-regulated investments, insurance policies, pension funds, as different FIPs come live on the AA Network.

While there were PFM apps that exist, such as these apps, rely on scraping your SMS or Email to identify financial transactions. However, these modes pose a privacy risk for user, and the data obtained is often incomplete, riddled with errors, and hence unreliable. Consumer Fintech Apps, such as Fi Money, Jupiter and IndMoney have integrated ‘Net Worth’ features and provide insights relying on AA.