Eight of India’s major banks — State Bank of India, ICICI Bank, Axis Bank, IDFC First Bank, Kotak Mahindra Bank, HDFC Bank, IndusInd Bank and Federal Bank has joined the Account Aggregator (AA) network that will enable customers to easily access and share their financial data.

What is an Account Aggregators (AA)?

• According to the RBI, an AA is a non-banking financial company engaged in the business of providing, under a contract, the service of retrieving or collecting financial information pertaining to its customer.
• It is also engaged in consolidating, organizing, and presenting such information to the customer or any other financial information user as may be specified by the bank.
• The AA framework was created through an inter-regulatory decision by RBI and other regulators.
• These regulators include SEBI, Insurance Regulatory and Development Authority, and Pension Fund Regulatory and Development Authority (PFRDA) through an initiative of the Financial Stability and Development Council (FSDC).
• The license for AAs is issued by the RBI, and the financial sector will have many AAs.
• The framework allows customers to avail themselves of various financial services from a host of providers on a single portal based on a consent method, under which the consumers can choose what financial data to share and with which entity.

What does an AA do?

• Reduce bank traffic: It reduces the need for individuals to wait in long bank queues, use Internet banking portals, share their passwords, or seek out physical notarization to access and share their financial documents.
• Data security: An AA is a financial utility for the secure flow of data controlled by the individual.
• Data flow: AA is an exciting addition to India’s digital infrastructure as it will allow banks to access consented data flows and verified data.
• Reduced cost: This will help banks reduce transaction costs, which will enable us to offer lower ticket size loans and more tailored products and services to our customers.
• Transaction security: It will also help us reduce fraud and comply with upcoming privacy laws.

How does it work?

• It has a three-tier structure:

1. Account Aggregator
2. FIP (Financial Information Provider) and
3. FIU (Financial Information User)

• A FIP is the data fiduciary, which holds customers’ data. It can be a bank, NBFC, mutual fund, insurance repository, or pension fund repository.
• An FIU consumes the data from a FIP to provide various services to the consumer.
• An FIU is a lending bank that wants access to the borrower’s data to determine if the borrower qualifies for a loan.
• Banks play a dual role – as a FIP and as an FIU.
• An AA should not support transactions by customers but should ensure appropriate mechanisms for proper customer identification.
• An AA should share information only with the customer to whom it relates or any other financial information user as authorized by the customer

What purpose does it serve?

• AA creates secure, digital access to personal data at a time when Covid-19 has led to restrictions on physical interaction.
• It reduces the fraud associated with physical data by introducing secure digital signatures and end-to-end encryption for data sharing.
• These capabilities in turn open up many possibilities.
• For instance, whereas physical collateral is usually required for an MSME loan, with secure data sharing via AA, ‘information collateral’ (or data on future MSME income) can be used to access a small formal loan.
• HDFC Bank and Axis Bank have been using AA for auto loans, Lending Kart for MSME loans, and IndusInd Bank for personal finance management.

What data can be shared?

• An Account Aggregator allows a customer to transfer his financial information pertaining to various accounts such as banks deposits, equity, mutual fund, and pension funds to any entity requiring access to such information.
• There are 19 categories of information that fall under ‘financial information, besides various other categories relating to banking and investments.
• For sharing of such information, the FIU is required to initiate a request for consent by way of any platform/app run by the AA.
• Such a request is received by the individual customer through the AA, and the information is shared by the AA, after consent is obtained.
• The AA framework is an excellent initiative that will compile all the digital footprints of the customer in one place and make it easy for lenders like us to access it.
• It will enable us to provide very quick turnarounds to our customers.

Can an AA see or store data?

• Data transmitted through the AA is encrypted. AAs are not allowed to store, process and sell the customer’s data.
• No financial information accessed by the AA from a FIP should reside with the AA.
• It should not use the services of a third-party service provider for undertaking the business of account aggregation.
• User authentication credentials of customers relating to accounts with various FIPs shall not be accessed by the AA.

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