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An Overview of the Account Aggregator Framework in India

India has over 572.2M internet users as of 2021[1]. The increase in technological usage gave rise to a new revolution in India. It is India's finance technology that has been rising since the 2000s. Recently, the whole digital payment system saw a massive spike with the introduction of UPI (United Payments Interface). UPI is now used by most Indians and has given transparency to the payment system. It is widely accepted in almost all the stores now. India has seen a surge of 86%, and there are over 300 million active and registered users of UPI [2] .
Similarly, to bring transparency and better access to the user's financial information, India launched another revolutionary infrastructure called the "Account Aggregator Framework" in September 2021. This framework makes the lending process easy, and it also aims to let the individual quickly access it. They can share it anytime, anywhere with the intended third parties (Banks/NBFC).

What is Fintech?
Fintech is simply financial technology. This sector is well regulated as it is a matter of an individual's financial privacy. Any technology that improves the automation and infrastructure of financial services in the country is called fintech. It includes the way businesses transact, digital money wallets, digital payments.

There are 4 categories of users of a fintech:

  1. B2B banks
  2. Business clients
  3. B2C for small businesses.
  4. Consumers

Take the example of mobile banking. Any company that has provided its services to improve the consumer experience and has provided innovations in the traditional structure of financial services is a fintech.

Take an example of Phonepe, PayPal. They are fintech companies. India's Fintech segment has also seen exponential growth in funding; investments worth more than US$8 billion were received across various stages of investment in 2021[3].

These companies provided a lot of services to the country's financial sector. Thanks to fintech, you can now transfer money to your friend via any medium instead of the whole traditional process of visiting banks for every issue.

There are 2100 Fintech companies in India, and more than 67 percent of these have been set up in the last five years[4].

Role of RBI in the Regulation of Financial Sector
RBI (Reserve Bank of India) is the regulator and the supervisor of the overall financial system in the country. It is the Central Bank of India. The roles of RBI include the circulation of money, protecting the nation from hyperinflation, protecting the interest rates, providing banking alternatives, etc. RBI is the issuer of currency in the country. It controls all the banks in the nation. RBI creates the policies like monetary policy, fiscal policy. RBI also regulates the financial activities in the nation. For any fintech to operate in the country, the Central Bank should permit it by creating a valuable framework for that technology's operations and performance in the nation.

The RBI launched the OCEN (Open Credit Enablement Network) in July 2020, which gave small-scale businesses an easy credit procedure. AA also works through OCEN to provide individuals with easy availability of loans.

Illustration
Imagine a person "P" who needs a home loan from bank A. He holds 2 bank accounts. To obtain a loan from the Bank, P needs his bank account statements from both of his accounts of Bank A, Bank B. P needs to show the Bank his insurance, Mutual fund holdings to assure that he can make the timely repayment. The RBI has introduced the Account Aggregator system to skip the whole process by digitally sharing the information with Bank A.

What is DEPA?
DEPA ( Data Empowerment and Protection Architecture) is a strategy introduced by NITI Aayog (National Institute for Transforming India) in August 2020 to empower people to have seamless, secure, and full access to their data. This framework gave access to the users to share data with third-party institutions only with their consent. It is a mechanism that is beyond data protection through PET (Privacy Enhancement Technology). The goal of DEPA is to make Indians "data-rich". This framework ensures that only users can have full access to their data and share it with any third-party institutions based on their requirements. This framework introduced an Account Aggregator system where everything happens through an API. And an agreement will be signed by the entities that share the data.

DigiSahamati (SAHAMATI)
Sahamati is a self-organized non-profit organization that provides for the advancement and operation of the Account Aggregator ecosystem. Sahamati believes that the account aggregator system is India's Open Finance system that drives users to their destination of data empowerment. It gives certifications for the entities. Sahamati has been developing technical utilities and various certificates for the account aggregator system. Sahamati aims to build and establish an alliance strategy to develop an Account Aggregator[5]. Sahamati extends the use and promotes the design of AA.

Account Aggregator (AA) Framework
The RBI, on September 2, 2021, introduced the Account Aggregator framework to the country. It was first seen in the year 2016's government policy. It is created by regulatory giants like RBI, SEBI (Securities and Exchange Board of India), IRDAI (Insurance Regulatory and Development Authority), PFRDA (Pension Fund Regulatory and Development Authority) through FSDC (Financial Stability and Development Council). This framework gave Indians power over their personal financial data. This framework created data intermediaries called Account Aggregators to access users' financial data and provide that to third parties based on their consent. This system enables the individual to choose between numerous Account Aggregators through which they want to share the data with the intended Bank.

The framework defined account aggregator and the business of Account Aggregator as follows:
Section 3(1)(i) - "Account Aggregator" means a non-banking financial company, that undertakes the business of an account aggregator, for a fee or otherwise[6],

Section 3(1)(iv) - "Business of an account aggregator" means the business of providing under a contract, the service of, retrieving or collecting information of its customer pertaining to such financial assets, as may be specified by the Bank from time to time, and consolidating, organizing and presenting such information to the customer or any other person as per the instructions of the customer. Provided, the consolidated statement/ report of the financial assets of customers, and shall not be a property of any Account Aggregator, for further use. The consolidated statement/ report will be only for use of the customer[7].

Parties
The framework included two parties, i.e., FIPs and FIUs. They are Financial Information Providers and Financial Information Users.
FIP may be a bank, Mutual Fund house, Insurance Policy provider, Invoice/Tax platform according to the RBI
FIU might be for the Wealth Management, Personal Finance Management, Robo Advisors, Cash flow-based Lending(Banks, Non-Banking Financial Company).
The FIPs provide info to the FIU through the Account Aggregators, only with user consent. Let's look at the process of the AA.
The process works in this way. First, the individual will sign up to use the AA services and links his accounts. Next, the FIUs request the Account Aggregator to send the desired financial information of the individual. The Account Aggregator then asks the user about the FIUs request and asks the consent to share that information. Based on their consent, the Account Aggregator decides to send the encrypted data if he agrees or vice versa.

Security
The personal financial data is private to the individual. The process ensures the giving of this information with encryption to the FIUs who require the data to assess the individual's financial credibility. The FIU can then decide whether to lend the money to the borrower or not. To minimize the risk of data theft, the process ensures that not even the Account Aggregator can access, view your data. The conveyed info can only be decrypted by the FIUs. The whole course of sharing financial data works hassle-free and in a safe and secure way. It makes the individual not worry about identity theft and cyber fraud.

NBFC-AA license
All the entities to be an Account Aggregator should hold a license issued by the regulatory body to work as AA. RBI first announced it in 2016. The AAs will be consent managers for the transfer of financial information. A company to get a license should make an application in the appropriate format. The company should check whether it has the resources required for the process of AA. The RBI evaluates and then issues a Certificate Of Registration (COR) and a valid NBFC-AA license to the entity. Participation is not made mandatory by the RBI. It is a voluntary action by the Banks, entities. The in-principle approval given by the RBI will be valid for 12 months. Within these 12 months, the entity should create a technological platform that supports AA. After the whole process is done and verified, the central bank issues a COR for that entity. Currently, three apps (Yodlee, Phonepe, and Perfios) received in-principle approval from the RBI.

Which Entities Have Joined The Account Aggregator Ecosystem?
Seven AAs like CAMSFinServ, NESL Asset Data Limited, Finsecc AA Solutions Private Limited (Product known as OneMoney), Perfiros Account Aggregation Services Pvt Ltd (Product known as Anumati), have already received approval from the RBI to move ahead with their AA systems.
Currently, 104 entities are a part of the AA ecosystem in the form of FIPs and FIUs. They include banks like Axis Bank, ICICI Bank, Induslnd Bank, Kotak Mahindra, State Bank of India, IDFC, Federal Bank, Karur Vysya Bank, Karnataka Bank, Central Bank of India. Entities like Bajaj, IIFL, Goalteller, Groww, Paisabazaar, Policybazaar are also a part of the AA system. Most of them are still evaluating and implementing the Account Aggregator system, where 14 of the entities made the Account Aggregator system live.
100K accounts are successfully linked in the running total of accounts linked by account owners[8].

What data is shared with the AAs?
The users can choose to share all their financial data like insurance, Mutual fund holdings, investments with the Account Aggregators.

Can a user de-link their accounts from the AA?
Yes, a user has full access over his data. He can choose what data he wants to share and in what way. He can de link a particular account from the Account Aggregator anytime.

Benefits of the Account Aggregator ecosystem
Account Aggregators help individuals share financial data safely without the requirement of physical documents. Small scale businesses and self-employed persons find it hard to get credit. The AA system ensures that they can get a credit based on their GST invoices, securities information, verified statements. Today, the process of borrowing a loan takes a lot of effort. The submission of physical documents sharing usernames and passwords will be removed with the AA system. But for that to happen, banks and entities should join the Account Aggregator ecosystem as FIPs and FIUs according to their functioning and relation with the individual. As time progresses, with the ease and security of the AA system, the fintech landscape changes drastically and helps build a digital India.

What is the use of AA when we have CIBIL, PAN?
Mostly, everyone has this question revolving in their minds. Services like credit bureau (CIBIL score) exist and are helping the financial system of the country. CIBIL only gives you the credit score based on the repayments, and PAN only records transactions crossing 50,000 rupees.

A typical bank gives a loan when the person has a credit score of over 750. The Account Aggregator system aims to bring all the financial transactions the user makes to a single place that the user can limit and share according to his requirement. The Account Aggregator system helps a small scale business, an individual, borrow a loan in a hassle-free way. The registration with the AA can happen on their app or website. These apps and websites have certifications that will be issued by the regulatory.

Can you trust an Account Aggregator?
According to RBI, the Account Aggregators are trustworthy and are capable of doing the sharing job. This is never a breach of the financial privacy of the individual. Because the sharing happens only when the data is encrypted and safe. The Account Aggregators can never aggregate your data. They can't see your information too. The job of an Account Aggregator is simple; they take info from one institution and give it to the user's intended institution. This process works only when the user's consent is given.

Do you need to pay for using the Account Aggregator system?
It depends on the Account Aggregator you are thinking of using to share your data. Some may charge the fee, but it won't be that high. The AA system will be accessible to every person of every social class.

Conclusion
The RBI (Reserve Bank of India) works in all the ways possible to make the Indians data-rich. We are safe in the hands of RBI, and all the actions taken by the RBI will be ensured to work under all circumstances. The Account Aggregator framework is similar to UPI (United Payments Interface). UPI has changed the way payment systems used to work. The Account Aggregator system works the same way but with the data empowerment of the individuals. With AA, you will have the access to your financial data.

End-Notes:

  1. https://www.statistia.com
  2. https://www.fortuneindia.com/enterprise/upi-transactions-surge-86-ytd-to-844-bn/106342
  3. https://www.india-briefing.com/news/what-trends-are-driving-the-fintech-revolution-in-india-23809.html/
  4. https://www.india-briefing.com/news/what-trends-are-driving-the-fintech-revolution-in-india-23809.html/
  5. https://sahamati.org.in/about/
  6. https://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=3142
  7. https://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=3142
  8. https://sahamati.org.in/aa-dashboard/

REFERENCE:

  1. https://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=3142
  2. https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1753713
  3. https://economictimes.indiatimes.com/small-biz/money/how-account-aggregators-can-bring-an-era-of-democratised-credit/articleshow/87577782.cms?from=mdr
  4. https://sahamati.org.in/aa-dashboard/
  5. https://indianexpress.com/article/business/banking-and-finance/five-ways-the-account-aggregator-framework-will-benefit-customers-7585217/
  6. https://yourstory.com/2021/09/account-aggregator-framework-explained-rbi/amp

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