Thousands of Indians have signed up for and are using the apex bank-regulated account aggregator (AA) platform in less than two months of it going live.
Prelims, GS-III: Indian Economy (Growth and Development of Indian Economy, Banking)
Dimensions of the Article:
- About the Account Aggregator (AA) network
- How does the AA network work?
- Why was AA needed?
About the Account Aggregator (AA) network
- The Account Aggregator (AA) network simply facilitates sharing of financial information in a real-time and data-blind manner (Data flow through AA are encrypted) between regulated entities (Banks and NBFCs).
- AA solves the problem of data scattered across financial institutions and enables it to be brought to one place with customer consent and in a data-blind manner where the AA cannot view or process the data.
- The RBI (Reserve Bank of India) in 2016 approved AA as a new class of NBFC (Non Banking Financial Companies), whose primary responsibility is to facilitate the transfer of user’s financial data with their explicit consent.
How does the AA network work?
- The AA network features financial institutions such as banks, NBFCs, NBFC-AAs, third-party services, and others.
- Banks act as financial data providers, lenders act as financial data seekers, NBFC-AAs act as mediums of communication between banks and lenders, and third-party service providers work with AAs.
- 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 containing the customer’s financial data.
- Second, the customer can provide consent to a lender to access their financial data through the NBFC-AA. This usually happens when the customer is looking for a loan or some other financial product that requires their financial information to be collated.
- Third, after consent is provided, the account aggregator seeks permission from the financial data providers to access the customer’s data.
- And finally, the data is sent to the account aggregator, which, in turn, empowers lenders to better evaluate the customer’s financial profile and risk associated with providing a loan.
Why was AA needed?
- Before AA came into the picture, entities used a process called screen scraping where third-party applications collect screen data and translate it to display on another application. An expert said as there was no uniformity across entities there were inefficiencies and problems whenever a bank would bring changes to their applications.
- Additionally, it was sensitive information being viewed through the screen scraping process. AA was the natural solution to it in the form of user consent driven architecture, the expert added.
- The AA ecosystem makes it a regulated and legitimate process with all regulated entities involved.