how it works and why it is necessary


At the beginning of September 2021, a new technological infrastructure account aggregator (AA) was launched at a virtual event. Presented as a revolutionary element for opening up access to financial data for private and professional customers, it quickly saw eight major banks join the AA network.

These included State Bank of India, ICICI Bank, Axis Bank, IDFC First Bank, Kotak Mahindra Bank, HDFC Bank, IndusInd Bank and Federal Bank.

Here’s everything you need to know about the Account Aggregator (AA) framework and how it works:

Simply put, the AA platform enables the the data of the people to be collected, with their consent, and shared among financial institutions.

This allows institutions to better understand potential clients and tailor their services accordingly. It also allows the free flow of data between banks and financial service providers.

The AA network explained

The AA network includes financial institutions such as banks, NBFC, NBFC-AA, third-party services, and others.

Banks act like financial data providers, lenders act like financial data researchers, NBFC-AAs act as means of communication between banks and lenders, and third-party service providers work with AA.

First, an individual or business opens an account with an account aggregator. Then they create a funnel for their financial data by linking their bank accounts, insurance policies, etc. which are accounts that contain the financial data of the customer.

Second, the customer can give consent to a lender to access their financial data through the NBFC-AA. This usually happens when the customer is looking for a to lend or any other financial product that requires their financial information to be gathered.

Third, once consent has been given, the account aggregator request authorization financial data providers to access customer data.

And finally, the the data is sent to the account aggregator, which, in turn, allows lenders to better assess the client’s financial profile and the risk associated with granting a loan.

A Sahamati infographic on the AA network

The need for AA

With improved access to data, pressing financial needs such as small loans for MSMEs and affordable microinsurance could potentially be better satisfied with the help of the AA framework.

Until there, HDFC Bank and Axis Bank have used the framework to provide auto loans, and IndusInd Bank has used it for personal finance management.

Four NBFCs, namely Finvu, OneMoney, CAMS Finserv and NESL, would have received operating licenses while PhonePe, Perfios and Yodlee have received approval in principle.

For MSMEs, who collectively face a credit deficit, better access to their financial data can help provide more visibility on their solvency.

As the majority of MSMEs are largely outside the scope of formal credit due to the lack of transparent and accessible financial records, the AA framework can help regulate, digitize and simplify the process of opening access to financial data.

Therefore, this improved access can help lenders better meet the financial needs of MSMEs.

The role of the RBI

The Reserve Bank of India (RBI) mandated banks, NBFCs, insurance companies and other financial institutions to share customer data in a structured way with account aggregators.

According to RBI Deputy Governor Mr. Rajeshwar Rao:

“AAs enable secure and consented data flows while protecting user privacy. In conjunction with other platforms such as the Unified Payment Interface, Account Aggregator creates the world’s most advanced digital financial infrastructure in India. “

The RBI has also demanded that data cannot be monetized and that data flowing through AA platforms be deleted after a specific period of time. In addition, the data is encrypted to prevent any form of leakage or exploitation.

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