India on Thursday launched the account aggregator (AA) system that aims to consolidate all financial data of users in one place and extend credit services to them based on that information. Built on the theme of the Unified Payments Interface (UPI), financial experts are projecting it as a game-changer in providing financial products.
As of now, four banks — HDFC Bank, ICICI Bank, Axis Bank and IndusInd Bank — have joined the aggregator network. Other banks like the State Bank of India (SBI), IDFC First Bank, Federal Bank and Kotak Mahindra Bank are yet to go live on this.
How will it work?
According to Krishnan Vishwanathan, CEO and Founder at Kissht, account aggregator systems will act as an intermediary to collect data from Financial Information Providers (FIP) that hold the consumer’s personal financial data and share that with Financial Information Users (FIU) like lending agencies that provide financial services.
How will consumers benefit?
With the escalating rise of digitalisation in the financial hemisphere, Sonam Chandwani, the Managing Partner at KS Legal & Associates said that accounts aggregation would not only seamlessly diminish the traditional asset-based approach but would also without an iota of doubt transform the way financial transactions are performed.
Kissht's Vishwanathan added that AA system could potentially enhance the efficacy of the credit services because it will allow access to consented financial informational data of individual customers and small businesses, allowing lenders to make a sharper assessment of the borrower’s credit risks and process more loan applications faster, without compromising due diligence and safety.
“It's surely a step in the right direction towards creating a robust and revolutionary lending ecosystem,” he said.
Sumit Gwalani, co-founder at Fi further called it a big step towards a connected financial ecosystem that will help working millennials get better with their money.
It’s important to note here that Fi is one of the first fintech companies to adopt the Reserve Bank of India’s (RBI) Account Aggregator (AA) framework.
Will it succeed?
As per Vishwanathan, the success of the account aggregator will depend on whether all banks partner with this system because if some banks are left out of the system the user financial information will not be complete and not be of much use for lenders.
“Also, there needs to be more clarity on the extent of consented financial information that will be shared with credit providers,” he pointed out.
What are the risks?
According to Chandwani, the process is still at a nascent stage, thus, the risk of high costs and data breaches is highly possible.
(Edited by : Ajay Vaishnav)