The account aggregator (AA) ecosystem is set to transform user experience in accessing financial services. Between September 2021, when it was launched, and March 2024, the AA ecosystem has facilitated disbursement of 42.2 lakh loans worth ₹42,300 crore, with 39 per cent going to micro, small and medium enterprises. At the same time, it has provided financial management services to 1.05 crore customers ranging from young salaried employees to middle-aged homemakers.

Traditionally, underwriting individuals and MSMEs for financial products and services requires documents such as income proof, collateral, credit history, and tax receipts. However, many customers, especially in unorganised sectors, lack access to these documents. The available financial information is scattered across institutions and is cumbersome to collect and share. So financial institutions struggle to assess the ‘thin-file’ or ‘no-file’ customer accurately.

To address these challenges, the Reserve Bank of India introduced in 2016 a framework for aggregating accounts of non-banking financial companies. It establishes a digital public infrastructure (DPI) for consent-based data-sharing in the financial sector. Customers can consolidate diverse financial data, enabling informed decision-making and access to financial services.

Parts of the whole

The AA ecosystem comprises customers, financial information providers (FIPs), financial information users (FIUs), and account aggregators. FIPs and FIUs are regulated entities that store, manage, and protect customer data.

The AA ecosystem includes all domestic public sector and private sector banks; regional rural banks; a majority of asset management companies; registered investment advisors; general, health, and life insurers; credit rating agencies; and the Goods and Services Tax Network.

Until September 30, more than 160FIPs have been onboarded to equip customers to share data from more than 2.12 billion financial accounts with 500-plus FIUs. It is currently recording three lakh consent-based data-sharing transactions a day. As many as 11.4 crore transactions across nearly 99 million financial accounts have been facilitated.

Account aggregators are a category of RBI-regulated NBFCs that enable customers to access and share financial data across institutions with explicit, informed consent. AAs are data-blind, do not store data, and serve as a secure bridge for customers.

The AA framework ensures that the customer controls their financial data, decides when and with whom to share it, and revoke past consents at will. It equips service providers to access tamper-proof data directly from multiple sources and significantly reduces processing times. Data shared through the AA ecosystem is end-to-end encrypted and can only be accessed by the FIU for the purpose and time period specified in the consent.

Thus, AAs act as consent managers for customers in the financial sector, in line with the Digital Personal Data Protection (DPDP) Act 2023.

Access to services

The transaction process is initiated when a customer seeks a financial service such as a loan, insurance, or investment advice. The FIU initiates a consent request, via the AA, to access the customer’s financial data.

The AA creates and sends to the customer a consent artefact detailing the purpose, data needed, fetch type, and data life. Once approved, the AA requests financial data from FIPs, which respond with encrypted data packets. The FIU decrypts and analyses it to offer the customer the desired financial service.

Challenges

It was not easy to onboard FIPs initially as there were concerns over data security, customer protection, and skewed competition, as also the lack of a comprehensive privacy law.

The market then embraced the principle of reciprocity, encouraging data users (FIUs) to contribute as data providers (FIPs). Advocacy helped garner wider adoption of the AA framework.

The shared vision of empowering individuals with greater control over their financial data has established an interconnected and user-centric financial ecosystem. The balance of power is shifting in favor of customers. As per our analysis, the data-sharing volumes via the AA ecosystem will cross 9 billion by 2027.

Beyond lending and personal finance management, services such as insurance, retirement planning, goal-based investing, and wealth management are in the offing. Similar to UPI, the AA ecosystem will foster innovation across products and business models to usher in a fresh wave of financial inclusion.

(The writer is CEO of Sahamati)