As we move toward a digital era, most of our financial records are now accessible online. However, these records are scattered among different financial institutions, such as banks, insurance companies, stock brokers, etc. You need to repeatedly complete the same paperwork and provide the same information each time you sign up for a new service.
Would it not be amazing if information once provided for accessing a particular service could be reused for any subsequent service so requested?
The answer is the Accounts Aggregator Framework. As the name implies, Account Aggregators (AA) are regulated and approved entities by the RBI that assist customers in securely accessing their financial data from their banks and sharing it, if they choose, with other participating financial institutions. The AA cannot ‘see’ the data for themselves, which gives customers the peace of mind that only they are in control of their data.
For example, a user has a savings account with SBI and health insurance with Bajaj Allianz. He or she now requires a personal loan and approaches ICICI Bank for assistance. What will the Bank do?
They would request your personal as well as financial data. You will need to submit a lot of documents such as your Bank Account Statement, ITR, Form 16, PAN, Aadhar, etc. to avail of the loan. It can be shared with one click, and access to such data can be revoked at any time you want.
The AA applications will gather information from various FIPs and transmit it to FIUs via a consent-based mechanism. The user is no longer required to visit multiple websites, download data required by financial service providers like lenders and financial planners, share confidential login information, or physically provide hard copies of documents from various entities like FIPs.
The account aggregation ecosystem consists of the following four parties:
- The data principal or the end user is someone who has an account with a bank, AMC, or insurance provider.
- A financial institution where the customer has an account. These represent the FIPs.
- Financial Information User (FIU) which is a regulated institution, is regulated by the Reserve Bank of India (RBI), Securities Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI), and PFRDA. When appropriate, FIUs also take part in FIPs.
- Account Aggregators (AAs) are licensed organizations that assist Data Principals in securely accessing the data stored by FIPs and sharing that data with the FIUs of their choice. In a nutshell, AAs manage consent.
The USP of this framework is that clients’ financial data, which is spread across various banks, insurers, mutual funds, and other organizations, can be integrated into a single perspective on a digital framework. Customers sharing their banking information with other banks or financial institutions through hard copies or PDF documents generally have to put in a lot of effort. However, with the AA framework, they can easily share information once or on an ongoing basis for a predetermined period of time. The framework also allows customers to revoke their consent at any time.
Five Use Cases of Account Aggregators
1. Wealth Management: The recipient’s money may be invested in various financial assets, and in managing this investment, the FIUs must have a full view of all financial statements and related information. AA can assist in providing the FIUs with the data based on the consent method.
2. Getting Loans: Presently, to get a loan, several documents such as a bank statement, salary payslip, form 16, credit bureau report, and other documents must all be evaluated by the lending bank with the consent of consumers, banks, and other private lenders. Since NBFCs now have access to extra financial information about the customer, such as investments, assets, and other financial data, they can offer a loan with a lower interest rate by combining that information with the credit bureau report (if available).
3. Tracking Spending: People frequently make small, impulsive purchases, such as buying popcorn at the movies or taking a cab to work. Over time, these modest costs can add up to a hefty amount. Consumers may benefit from having a single window where they can access all of their financial information, including expense data compiled from multiple institutions, to better understand and manage their expenses.
4. Keeping Medical Records: AA assists with keeping all the medical records in one place. As part of the Ayushman Bharat initiative, every person in India will receive a digital health ID card. The AA platform will now be able to provide a consolidated picture of a user’s previous and present health-related data once this health data has been integrated with it. Health-tech companies, diagnostic facilities, hospitals, and others can access their patient’s entire health data (with their consent) in a single readable consolidated format and provide a quicker and more accurate diagnosis of the problem as a result of the availability of additional information.
5. Purchasing Insurance: Keeping track of your health makes it easier to buy both life and health insurance. The financial underwriting of a customer’s insurance policy by an insurance company is dependent on a range of criteria, including the customer’s past medical history and family medical history. All information about the user’s medical history, current health issues, salary, net worth, and other factors is combined into one readable format with their consent, which assists clients in getting more accurate insurance premium estimates and helps insurance firms properly underwrite the relevant policy.