Account Aggregator System – how will it work?

India on Thursday announced that the Account Aggregator (AA) System has gone live, with four banks already setting the course.

HDFC Bank, ICICI Bank, Axis Bank and IndusInd Bank have gone live with the system, while State Bank of India (SBI), IDFC First Bank, Federal Bank and Kotak Mahindra Bank are yet to go live on this.

Apart from banks, FinTechs have also shown interest in joining the network. Fi is among the first FinTechs to join.

Payment companies are also lending their hand in the AA network. Cashfree, a banking API platform, on Monday launched a Banking-as-a-service solution, offering ‘Accounts’ to banks and FinTechs for integrating banking services into their product. This will allow FinTechs to offer features like account opening, linking, deposits, check balance and interest earning to their customers, partners and vendors.

What will the AA ecosystem do?

The AA ecosystem will help customers digitally access and share financial data across institutions, thereby reducing the need to wait in long queues outside banks, use internet banking portals or share passwords.

A platform that receives approval from the Reserve Bank of India to operate as an Account Aggregator, can enable free and instant exchange of financial data between Financial Information Users (FIUs) and Financial Information Providers (FIPs) with due consent from customers.

What does the industry think?

AA has been viewed as “game changer” in providing financial products, and welcomed by the industry especially amid COVID-19.

“The Account Aggregator framework is an excellent initiative that will compile all the digital footprints of the customer at 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,” said Manoj Viswanathan, managing director and chief executive officer of HomeFirst Finance.

The system has gained traction from various countries, including the European Union, the UK, Japan, and Australia.

How can AA help?

Amid COVID-19, AA created access to personal data on physical interactions for services.

For instance, 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, LendingKart has been using AA for MSME loans, while IndusInd Bank has been using it for Personal Finance Management.

Secure access to financial data via open banking infrastructure was estimated by a McKinsey report to create up to 5% of GDP in value for India by 2030.

What is in store for AA's future?

Many more banks are expected to join the AA ecosystem in the coming months to allow all customers, regardless of bank, to access their data. Four non-banking financial companies - Finvu, OneMoney, CAMS Finserv, NESL - have received operational licenses, while three payment companies - PhonePe, Perfios, Yodlee received in-principle approval from the RBI.

Consumers using AA will help ease of access to data, greater choice of products, better pricing, and increased financial inclusion.

With the Personal Data Protection Bill likely to become a law soon, the AA framework will become essential for regulatory compliance and access to consented data flows.

The AA was first introduced in July 2015 by the Financial Sector Development Committee (FSDC), chaired by the finance minister along with RBI, Securities and Exchange Board of India, Pension Fund Regulatory and Development Authority and Insurance Regulatory and Development Authority.