India launches Account Aggregator system to improve credit access

India launched the Account Aggregator system on Thursday which promises to consolidate all financial data of users in one place and extend credit services to them based on that information rather than depend on collateral. 

Four major Indian banks—HDFC, ICICI, Axis and IndusInd—are currently live on the account aggregator network, which accounts for around 40% of all bank accounts in India, and other banks like SBI, IDFC First Bank, Federal Bank and Kotak Mahindra Bank are in the process of joining the system.

Account aggregators are essentially non-banking financial companies, licensed by RBI, that act as an intermediary to collect and consolidate data from all Financial Information Providers (FIP) that hold users’ personal financial data like banks and share that with Financial Information Users (FIU) like lending agencies or wealth management companies that provide financial services. 

It is worth noting that account aggregators will have access to data from a user’s current and savings account, which sets them apart from traditional credit bureaus like CIBIL and Experian which collect only lending products data or liability side data. However, unlike credit bureaus, for now, account aggregators do not have a rating system, though it can be built into the system.

Access to credit has historically been a big problem in India. And with the account aggregator framework, the RBI believes it can enable potential solutions to solve that given that financial entities on the account aggregator network would depend on users’ informational wealth rather than collateral for offering credit services. 

The account aggregator is an RBI initiative and was conceptualised back in 2014 with the idea of creating a single repository of information on all financial assets of all individuals, said RBI Deputy Governor Rajeshwar Rao on Thursday. The idea was to eliminate information asymmetry abundant in the financial sector. 

In 2016, the central bank had launched a framework to build the account aggregator system. And in 2019, a group of fintech players had come together to work on a market-ready solution of developing an intermediary platform that can handle these requests after receiving consent from users.

The network supports both individuals and enterprises. MSMEs in India often have to go through a number of hurdles before securing credit for their operations especially since their financial data lies with multiple financial entities. However, because the account aggregator system will bring all that data under one network, it would significantly reduce the time it takes for MSMEs to secure a loan.

Four account aggregator apps go live 

Four account aggregators also announced the launch of their apps on Thursday which include OneMoney, FinVu, CAMSFinServ and NADL. The primary job of these apps is to essentially act as a consent manager, or an intermediary, between a user and the financial entities that hold their financial data. For now, these are Android-only apps.

After receiving the content of a user, their financial data can be freely transferred within the ecosystem. These apps say they don’t have any visibility into the data that is being transferred within the account aggregator network as information is encrypted and users can decide for how long they want to share their data with a particular account aggregator participant.

PhonePe, Yodlee Finsoft and Perfios have received in-principle approval from the RBI to launch their account aggregator platforms. 

Responding to queries by Entrackr about how these apps are supposed to make money, OneMoney’s Parikshit Bhanushali said that it will be done via user onboarding and API calls, like existing credit bureaus. 

More to come 

Technocrat Nandan Nilekani, who has been a driving force behind the system, said that discussions are currently on to link telecom sector data to the account aggregator network. “For instance, if a person has a good track record of paying prepaid mobile bills he can be granted a loan from participating financial entities on the basis of that information,” Nilekani said.

That would be somewhat akin to how some heavy users at say, a retail chain are provided credit cards without any income proof. Here, the chain, through a membership program or such, is able to ‘rate’ a customer well enough for the bank to trust her with a card.  

Future plans involve expanding the system to other sectors as well. The tech lobby group iSpirt is working on a consent manager architecture similar to account aggregator and UPI for the healthcare sector to bring all patient records in the same network.