The Account Aggregator (AA) network, a system for exchanging financial data, was unveiled in India in 2021. It was designed to revolutionize lending and investing by giving millions of consumers greater access to and control over their financial records as well as expanding the potential market for lenders and fintech companies.
According to Invest India, as of February 2023, the Account Aggregator ecosystem had 1.1 billion AA-enabled accounts and 2.05 million users voluntarily shared their financial information with banks and financial institutions to apply for loans and receive better and faster deals on other financial products.
What is an account aggregator?
Account aggregators are a type of framework that act as intermediaries between customers and financial service providers. They allow customers to access and manage their financial data from various financial institutions, such as banks, insurance companies, mutual funds, and others, in one place.
The account aggregator system is based on the consent mechanism, where customers authorize the account aggregator to access their financial data from multiple institutions on their behalf. Once consent is granted, the account aggregator retrieves the data and presents it in a consolidated format to the customer, who can view, analyze, and manage it in real time through a single interface.
Data is collected, compiled, and shared via links to open application programming interfaces (APIs). Financial Information Providers (FIP) and Financial Information Users (FIU) are two concepts that are crucial to comprehend in this context. FIUs are organizations that have been registered with and are supervised by one of the financial sectors’ regulators, such as the Reserve Bank of India (RBI), Securities Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI), and Pension Fund Regulatory and Development Authority. FIPs are regulated financial firms that offer banking, lending, asset management, insurance, and other financial services and products.
How does an account aggregator work?
Traditionally, if someone wanted to apply for a personal loan, they would have to submit paperwork such as bank statements, tax returns, and pay stubs. However, the account aggregator applications will use a consent-based method to collect data from multiple FIPs and transfer it to FIUs under the AA network.
For example, a bank processing a loan application from a potential borrower could need to access a range of financial information about the borrower. With an account aggregator, the lending bank has access to information on the borrower’s savings, history of loan repayment, mutual fund holdings, and insurance holdings. Nonetheless, the borrower will need to obtain permission from the lending bank to share their personal information. This will happen through the centralized consent management system.
The user will no longer be required to physically share hard copies of various confidential documents or login information thanks to the availability of these aggregation services. Users will also be spared the tiresome effort of searching through numerous websites in search of the data that financial service providers want.
What are the benefits of an account aggregator network?
Account aggregators offer several benefits, including:
- Convenience: With the ability to consolidate financial data from multiple accounts in one place, users can save time and streamline their financial management.
- Control: Users have greater control over their financial data and can choose which accounts and data they share with third-party applications and services.
- Transparency: AA provides transparency into financial data and transactions, making it easier for users to understand their financial situation and make informed decisions.
- Security: Account aggregators use advanced security measures and data protection protocols to ensure the confidentiality and integrity of users’ financial data.
- Innovation: Account aggregation is a foundational technology that enables the development of new financial products and services, leading to greater innovation in the financial technology sector.
In conclusion, account aggregators are a promising solution for individuals and businesses seeking greater control over their financial data. With the ability to securely and efficiently aggregate data from multiple financial accounts, these platforms offer convenience, transparency, and enhanced financial management capabilities. Overall, account aggregation represents a significant step forward in the evolution of financial technology and has the potential to transform the way we manage our finances in the years to come. As technology continues to evolve and mature, it will be exciting to see how it is adopted and adapted by individuals and businesses alike.