Account Aggregator: New financial data sharing framework

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admin November 5, 2021
Updated 2021/11/05 at 6:42 AM

The RBI introduced the account aggregator architecture on September 2nd, with the goal of making financial data more accessible. The RBI has awarded a licence to a number of fin-tech firms to function as account aggregators under this scheme. Eight major banks have also agreed to exchange financial information on their clients with account aggregators.

How does an account aggregator function?

The framework will enable the sharing of financial data between data owners and users. To make this procedure easier, the RBI has permitted a number of firms, such as PhonePe, to operate as account aggregators. Account aggregators will serve as middlemen, collecting data from one financial organisation and transferring it to another. A bank processing a loan application from a potential borrower, for example, may require access to a range of financial data about the applicant. Through an account aggregator, the lending bank has access to the borrower’s savings, prior loan repayment history, mutual fund holdings, and insurance holdings. The borrower, on the other hand, will have to provide his approval for his data to be shared with the lending bank.

What benefits does it provide?

Currently, an individual’s financial information is dispersed among many financial institutions’ databases. So a person’s savings and loans data may be held by a bank, his investing data by a mutual fund, and his insurance data by another financial organisation. All of this information may be easily gathered and shared via account aggregators with the agreement of the user under the account aggregator framework. The framework’s proponents think that making data more accessible will assist the economy significantly. The framework will assist financial institutions in better assessing individual creditworthiness and, as a result, making better lending selections. Even while credit scoring systems like CIBIL exist to measure individual borrowers’ creditworthiness, their scope is restricted. A person’s PAN number, for example, only records a small number of transactions with a value more than a specific threshold amount. The framework is supposed to provide financial institutions with a larger range of data, making them more eager to service creditworthy populations that they previously disregarded. Account aggregators can also make creditworthy clients’ lives simpler by allowing them to easily exchange their financial information online. Financial firms may be able to better customise products to the demands of individual consumers if more financial data is available.

What safeguards are in place?

Given the potential of data theft, the problem of individual financial data security will be a major worry in the future. Account aggregators are required to receive and distribute financial data in encrypted manner in order to preserve individual privacy. Individuals will be in charge of data ownership, according to the RBI.

So, what’s next?

Given the benefits of data access, more financial institutions are anticipated to join the framework. Financial institutions may require data from account aggregators as a condition of receiving loans and other services in the future. Some think that a person’s PAN number, which acts as a common connection across numerous accounts held by that person, is a superior means to access his financial data. The framework’s ultimate success, however, will be determined by a number of variables. The extent to which financial businesses demand detailed, micro-level financial data from their clients, as well as customer enthusiasm for sharing such data, will be critical factors.

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