AA has made financial info available digitally and in real time

AA has made financial information available digitally and in real time. “Bulk of the Tier 2/3 towns’ population have banking history which helps lenders assess their financial health efficiently and decide on underwriting,” says Venkatesh Krishnamoorti, MD, CEO Saafe in an exclusive interaction with Bizz Buzz.

How can the ecosystem of Account Aggregators contribute to deepening financial inclusions, especially for the under-served and credit-invisible segments? What role can digital financial services play in accelerating access to formal finance?

The key objective of Account Aggregation (AA), part of the Digital Public Infrastructure, is to democratize access to competitive credit. UPI made payments digital and simple which in turn helped small businesses thrive and usher them into mainstream banking which would have otherwise been cash-based. In similar lines, AA has made financial information available digitally and in real time. Bulk of the Tier 2/3 towns’ population have banking history which helps lenders assess their financial health efficiently and decide on underwriting. Unlike in yesteryears, the New to credit (NTC) segment of population, armed with banking history, is able to access credit from any bank at competitive rates. Thus, shift away from local money lenders charging usurious interest rates is already happening.

Sharing of financial information through AA ecosystem is simple, secure and convenient. With just 3 clicks, a citizen is able to share her bank statement, asset details from the source to the lender. This has accelerated to credit underwriting process and loan disbursal.

How will aggregated financial data make lenders' credit underwriting more efficient and more accurate? How does access to secure, consent-based, real-time financial information transform traditional credit decisioning?

AA, as the name goes, aggregates all asset data incl savings accounts, equities, mutual funds, insurance policies etc to present a complete picture on the citizen’s financial health. Through analysis of bank statements, lenders can glean indebtedness of the citizen (EMI debits).

The USP of data sourced thru AA is Security for all. The data flows fully encrypted from the source i.e. Financial Information Providers (FIPs) to the destination i.e. Financial Information Users (FIUs) thru AA servers (data blind).

And because it is fetched from the source of truth, data is authentic i.e. error and fraud free.

Digital delivery enables straight through process automation of credit process. Barring high value loans, 90% of loans would be assessed on financial information with Business Rule Engines (BREs) providing the output needed by Credit owners to decide in quick time.

What mechanisms does the AA ecosystem employ to ensure security, confidentiality, and integrity of financial data? What are the implementation aspects of industry-standard security practices across stakeholders?

RBI Regulations governing NBFC – AAs are quite comprehensive and designed with Citizens’ data privacy at the core. In addition to complying with the RBI regulations, AAs are also mandated to purge the encrypted data immediately after delivery to FIUs. Being subject to periodic RBI audits, any violations on any of these regulations will attract severe action including cancellation of license.

FIUs can use the data procured from the FIPs ONLY for the purpose stated upfront to the Citizen at the time of seeking her consent. For eg: if a Bank seeks one time consent for accessing a Citizen’s data to process a home loan, the data so procured should only be used for that limited purpose. As all FIUs are regulated entities, they are subjected to audits by RBI/SEBI/IRDA/PFRDA.

Thus, regulations ensure strict compliance to security.

What is most important for establishing and maintaining user trust in Account Aggregators, especially concerning data privacy, consent management, and transparent data flows?

The consent artefact presented to citizen at the time of seeking her approval should disclose all key elements – purpose, validity, data life etc. This helps the citizen to make an informed decision – to approve or decline.

AAs also provide, via their app, a consent management module whereby, citizens can check all their active, expired, paused and deleted consents, Citizens can also pause or revoke via the app.

There have been a few isolated instances where some citizens have used AA whilst availing a financial service, without fully understanding the process and later questioning their bankers as to why their data was shared,

With more awareness – creation by all stakeholders about security and benefits of using AAs, the trust factor will grow.

How does the RBI's regulatory framework shape the operations of Account Aggregators in India? What are the key compliance requirements around data sharing, consent, and technical standards within this framework?

As mentioned earlier, the Master directions issued by RBI governs the roles, responsibilities and compliance regulations for Account Aggregators. In addition to the comprehensive detailing of consent artefact, timely purging of data from AA servers, periodic IT audits to ensure compliance and institutionalized grievance redressal process.

How can the AA system help people manage their personal finance better? What advantages do users gain from having a consolidated, holistic view of all their different financial accounts?

Under the current guidelines, based on self-consent, AAs can provide one view of all financial assets of the citizen on the app. Decryption occurs only at the device end and hence, security is ensured. With single sign on feature, after a one-time linking of all financial asset accounts, citizens save valuable time and effort to know their real time balances. At a basic level, it would help citizens to plan their outflows with “one view”. For any further benefits, citizens would have to avail services of Personal Finance Management offered by Registered Investment Advisors & Wealth managers registered with SEBI. These entities are FIU clients of AAs.

How does digital public infrastructure, especially the Account Aggregator framework, promote financial inclusion, transparency, and system efficiency? How does it spur innovation across Fintech and financial institutions?

Promotion of financial inclusion has been explained earlier in this questionnaire. Financial institutions have benefitted substantially on the back of use cases that AA has thrown up. For eg: Collection and Monitoring consents provide insights into balances and financial health of the customers during the tenure of loan relationship. This helps to time the presentment of e-nach for collection of EMIs at optimal costs and certainty of credits. Similarly, elimination of the erstwhile screen scraping method of obtaining customer data and using the secure rails of AA has brought in efficiency in FI processes.

How does open banking facilitate the secure, consent-driven sharing of financial data via the Account Aggregator ecosystem? How might digital public infrastructure speed up innovation in fintech, and how might financial institutions use it to offer ever-more personalized services?

ReBIT, RBI’s IT subsidiary is the architect of technical standards used by AAs. Unlike Singapore where open banking is govt-owned, India has created the world’s largest open finance ecosystem. All stakeholders in the Financial services are already reaping benefits ranging from cost-saving, time-saving, data privacy, consent management, real time one-view, monitoring of financial health of customers etc. AA data combined with alternate data such as social score has enabled hyper-personalization of offerings. Profiling of customers is more accurate with more data points available. With the enhanced protection provided by DPDP, citizens have power to control the usage of their data for availing financial services and improving their quality of life.

What are the major opportunities and challenges that the adoption of the Account Aggregator framework presents to consumers, lenders, Fintech, and regulators? How will the ecosystem overcome these challenges as it scales?

AA is fast emerging as a critical infrastructure for Financial services. Adoption, although, has been slower than what was widely expected. Nevertheless, the recent quarters’ growth rates on the back of large banks and FIs doubling down (and in some cases, making it mandatory) on use of AA for loans and other products.

Awareness in the minds of citizens about AA remains the single biggest challenge faced by the ecosystem. For decades, paper based financial information sharing has been the norm – either directly or thru DSAs. RBI has embarked on a campaign under its broader “RBI Kehta hai” to educate citizens about the benefits of AA. SEBI and IRDA also have to participate in this effort to make it more impactful. For eg: Mutual fund sahi hai campaign can be credited the most for popularity of SIPs in India. IRDA has recently launched its own “Insurance liya, accha kiya”. We need all hands on the deck to help reach every household.

EoM.