One of the headlines making rounds in the papers today, is about India launching Account Aggregator (AA). Eight Indian banks announced that they will be rolling it out. What exactly Is AA? Why is it relevant? Nandan Nilekani said he sees Unified Payments Interface (UPI) like magic in AA system. CNBC-TV18’s Pashant Nair explains it in detail.
Another UPI moment?
This could be a pretty big deal. Five years ago, the creation of the interoperable UPI platform was seen. This enabled a digital payments revolution in the country. The UPI has been the rails on which the multibillion-dollar fintech companies have been built, like Paytm, PhonePe. They have acknowledged it openly. Are we now on the cusp of another such momentous event?
The new platform in question is the Account Aggregator or AA. Simply put, this is an entity that facilitates the transfer of financial information between different entities, it could be different banks, it could be different financial institutions. This happens with the express consent of the customer.
The 'Account Aggregator' system:
To put it even more simply, they are a 'data bridge' between various particpants within the financial ecosystem. The system was launched on Thursday, with eight banks on board. Banks can now share data of individual customers with each other on the platform. The consent of the customer is a must for each time the data is shared for a particular purpose, and the Account Aggregator will not be able to see the data.
Who all are on board?
There are more who are expected to come on board. This includes the largest bank in the country, this includes the largest private sector bank, name HDFC Bank, ICICI Bank, Axis Bank – there will be more firms which will come on board.
A word on these go-between entities. These are Reserve Bank of India (RBI) license holders. So, they are regulated by the RBI. There are just under 10 account aggregator licenses which have been given out, and a few of the entities, which will act as AAs here.
How will it work?
In a very simple way - suppose you have a long-standing account with SBI and you are seeking a home loan from HDFC Bank. You can authorize or give consent to HDFC Bank to access your data from SBI for this purpose. The AA will run to SBI, collect the data - remember the AA will not see the data - and give it to HDFC Bank. HDFC Bank can look at your record and decide whether to give you the home loan or not.
What kind of data is shared?
It includes basic information about the user, that is personal details etc., a brief about the kind of data being sought and of course detailed report containing the list of records for that particular type of financial data.
The key to success:
The success depends on how many more banks are willing to come on board.
CNBC-TV18 spoke with a top bank CEO and he said, “Why should they share data with someone who is not on the platform? So, if there is a bank, which is outside the platform but wants data – will that work? Most likely no. this will work only if the seeking bank is also willing to share the data as well. So, the success depends on how many more financial institutions join. There are eight right now, but the success will depend on how many more come on board for this.”