The possibility to combine data from several sources in one location for efficient usage is one of the biggest advantages of the interdependence of digital technologies. Consumer expectations of speed, safety, security, and convenience have changed in the financial services industry due to the introduction of on-demand aggregators and marketplaces, as well as cutting edge technology. The idea of account aggregation has emerged because of these shifting client expectations.
Credit scoring and underwriting, for example, may be improved by using data from several financial information sources, which is essential for financial inclusion. Beyond credit rating agencies' conventional asset-based methodology, account aggregation includes cash flow-based data such multiple sources of revenue, spending, bills, receipts, and tax returns. Furthermore, screen scraping using the user's credentials or the user's physical or electronic sharing of the data are the usual methods used for data collecting, collation, and dissemination. The procedure is costly, time-consuming, prone to data leaks and breaches, and has a significant risk of compromising privacy.
A non-banking financial company that specializes in retrieving or gathering financial data related to its clients and organizing, presenting, and retrieving that data for the client or any other user of financial data is known as an account aggregator, according to the RBI. Additionally, Account Aggregators will only utilize the consolidated statement/report for the customer's purpose and may not use it in any other way.
The concept behind the Account Aggregator framework extends beyond the data that is available with RBI-regulated entities; it also encompasses the financial information of customers, as defined by the RBI's Master Direction, which is dispersed among multiple intermediaries and governed by multiple financial regulators.
Following the publication of RBI circular in 2016, the AA ecosystem has continued to expand quickly. By February 2023: - The RBI has granted operational licenses to nine firms, while eight more entities have received permission in principle. 143 FIUs and 31 FIPs have been onboarded. - More than 4.55 million users have successfully exchanged data from their current FIPs with prospective FIUs by using AAs to get approval.
Understanding the AA framework
The process of gathering, assembling, and synthesizing data from various accounts—including loan/credit accounts, savings and current accounts, credit cards, and investment accounts (including mutual funds, demat accounts, brokerage accounts)—as well as from government accounts, like public provident fund and income tax return data, and additional business or consumer accounts, like e-commerce, food, or mobility aggregators—all in one location is known as account aggregation or financial data aggregation in the financial services industry. Through links to open application programming interfaces (APIs), data gathering, collation, and exchange are made possible.
Three steps make up the general process flow of the AA framework: (a) Public to AA, (b) FIP to AA, and (c) AA to FIU. Note that there are two ways in which these phases might function. The user may choose to provide consent on own or AA can prompt the user to do so.
Here is a representation of the AA framework:
Public to AA
Securing electronic consent from the customers on what type of data to be shared and for what period.
FIP to AA
As consent managers, AAs forward requests for information to the appropriate FIPs, which keeps the customer data. FIPs securely send the required data in response to the request. Any financial institution or government database can serve as a FIP.
AA to FUI
AAs pass the data they get from FIPs to FIUs, who provide services and products to clients depending on the data they have access to. FIUs are governed by one of the four regulators (RBI, SEBI, IRDAI, and PFRDA).
Case example
A user requests assistance on financial planning and wishes to apply for a personal loan. The FIU will request documentation from the user, including pay stubs, bank statements, and income tax returns. In a similar vein, the user will have to supply information about his bank account, investments in other assets, funds, insurance that he has acquired, etc. to receive financial planning guidance.
The account aggregator will gather information from various FIPs and send it to FIUs through a consent-based system. By using account aggregation solutions, users can obtain information needed by financial service providers like lenders and financial planners without having to visit multiple websites, exchange private login credentials, or physically deliver hard copies of documents from various entities (FIPs).
Account aggregators serve as conduits for the safe exchange of data necessary to get credit, loans, and other financial services. Crucially, with an integrated framework that enables users to decide with whom to share their data, what data to share, why to share it, how long to share it for, and how to withdraw authorization to access it.
AA aims to empower individuals by allowing to share their data only after providing express authorization that is recorded in an electronic consent framework. Direct digital data sharing between the citizens' future financial services providers (FIUs) and current financial services providers (FIPs) is possible in real time.