What is it?
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.
An account aggregator is a platform that enables customers to view and manage their financial accounts, such as bank accounts, insurance policies, and investment portfolios, from different financial institutions through a single, secure online portal.
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.
Two Key Advantages of AAs
Easy: AAs will bring together all your financial information spread across multiple sources without you uploading/filing any documents.
Secure: AAs are data blind. They cannot see, process, or store your data. Your data will only be shared with the intended FIUs, and that too - with your consent.
Participants in the AA Ecosystem
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 Aggregator [AA]
These are companies licensed by RBI to provide account aggregation services, and enable communication of financial information between FIUs and FIPs. Read more here Eg. Finvu, OneMoney, CAMSFinserv, Perfios
Financial Information User [FIU]
Organisations that consume financial data to provide consumer services. Read more here. Eg. banks, lending agencies, insurance companies, personal wealth management companies, etc.
Financial Information Provider [FIP]
Organisations that hold your financial data. Read more here. Eg banks, insurance companies, mutual funds, pension funds, etc.
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.
Stage I: In-Principle Approval
Once an entity meets the initial thresholds identified in the regulations, RBI will grant an in-principle approval.
Stage II: Final Approval
Once an applicant obtains an in-principle approval, they have one year to enter into contracts with all FIPs/FIUs and set up the technology and infrastructure before RBI will grant the full license, after which the entity can start operating as an AA.
Currently, there are six live AAs, and nine companies with in-principle approvals, see complete list here.
The most important takeaway is that the list of live AAs has a healthy mixture of state entities, established fintech institutions such as CAMS, and new startups such as Finvu and OneMoney.
Additionally, there are nine companies with in-principle licenses, which should go live within a year. These include established startups like PhonePe, Setu, and Digio.
Therefore, the presence of 10+ AAs in the marketplace will promote competitiveness between AAs, leading to better outcomes for FIPs, FIUs and Users.
Financial Information Providers
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:
- Asset management companies
- Depository & depository participant
- Insurance companies & insurance repositories,
- Pension funds,
- Goods and Services Tax Network (GSTN)
*We further expect Income tax filings and data to be available in the next calendar year.
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.
Insurance Data with Insurance Companies & Insurance Repositories
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.
Investment Data with Depositories & RTAs
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.
For consumers, accessing investment data on an Account Aggregator will make it easier to manage their investments, by providing a single view of their portfolio across all asset classes.
This will allow them to make more informed decisions regarding their investments and plan their finances better.
For FIUs, by having access to a customer's complete financial picture, they will be able to better understand the customer's risk profile and offer them accurate and personalized products.
This will help financial service providers to build better customer relationships and increase customer loyalty.
Pension Fund Data with CRAs
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.
Practical Challenges faced by FIPs
FIPs (Financial Information Providers) may face several challenges when attempting to go live on an account aggregator ecosystem. Some possible challenges include:
- Ensuring compliance with regulatory requirement
- Establishing connections with account aggregators to facilitate data sharing
- Maintaining the quality and reliability of the data and services
- Implementing technology solutions to enable data sharing
- Providing customer support to users who are accessing their financial information
- Managing the risks and costs associated with data sharing
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.
Issues in Implementation by 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:
The data received has an incorrect timestamp, transaction id, and reference id.
Some FIPs share data that is outdated by more than 1-2 days.
Data is incomplete and missing some transactions
Bugs and performance issues in account discovery, account linking and data fetch processes, which are increasing user drop-offs.
Poor Response by FIPs to Bug Reports and Issues
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.
50% of complaints take more than 30 days to close.
50% of fresh complaints take more than 30 days for first response by FIP
53% of complaints pertain to Data Fetch, and 41% to Account Discovery
Only 59% of all FIPs are using the Complaints Portal.
Only 34% FIPs are improving their response rates.
35% of Issues are due to FIPs API Health
15% due to incomplete AA implementation by FIP
23% functional issues such as bugs in FIP APIs.
*These numbers were shared by Sahamati during their Community Call on November 25, 2022.
Sahamati’s Plan to Fix FIPs
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:
Generating periodic FIP specific reports on complaints each FIP needs to address.
Adding more features to the Portal, to reduce TAT for all complaints filed
Reporting erring and uncooperative FIPs to the Ministry of Finance.
Reducing Sahamati’s TAT in reporting and filing complaints,
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:
- Authenticity: The statements taken in print or a .pdf can be manipulated, and lenders do not have fraud-proof tools to verify authenticity. This increases operations for lenders, as they have to devote resources to verify authenticity, and also increases the risk of fraud (0.5-4% fraud rates) . AA solves this as the FIP provides the financial information to the FIU; this ensures that data is authentic and exhaustive.
- Friction: While obtaining credit scores, only requires a customer’s consent, and lenders can fetch credit scores without any further action required from a customer, providing bank statements requires a user to download their bank statement, take a print, or upload a PDF file. This creates friction in the lending process and increases user drop-offs in the lending journey. Combined with CKYC, Aadhar E-sign, and other innovations, lending has now become paperless. See sample lending flow here and here.
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.
Personal Finance Management
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.