Adoption of account aggregator by banks is gathering pace
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Adoption of the account aggregator (AA) ecosystem has picked up pace. The AA system enables individuals to aggregate their financial information from multiple accounts in one place, providing a comprehensive view of their finances.
Industry participants have started realizing benefits of the framework with the implementation of use cases across several retail product segments and remain optimistic about it gaining further traction over the next few years. The AA ecosystem has been built as an ‘open finance’ framework for India. The core objective of the framework is to empower individuals to use their own data footprint in order to improve their lifespan. Lots of issues were discussed during a recently held conference, focusing on developments in the aggregator ecosystem. Over multiple speaker sessions, panel discussions and product demonstrations were held as part of the event.
The AAs are based on the core principle of putting the individual in control of his financial information and enabling him to share that information in an easy manner. This framework has been built with various key use cases in mind: Easy access to banking, credit, affordable insurance and saving/investment services. Analysts are currently seeing the highest focus being laid on credit-related use case. While onboarding of financial information providers (FIPs) continues, there are some teething troubles. Still, these are like trivial matters and hence are not a concern. Over the past year, most of the large private and PSU banks have been onboarded onto the AA ecosystem as FIPs. Similarly, mutual fund RTAs and several insurance companies have also been onboarded as FIPs. In the pipeline is onboarding the GST network. This should, suggests a study by Kotak Institutional Securities, drive further use cases for underwriting credit to self-employed borrowers and small businesses.
The AA ecosystem is also dealing with its own teething challenges—such as systemic outages at the FIP or AA level, systemic constraints at some of the large FIPs and consent provision mechanism for joint accounts. However, this has not been a deterrent in driving increasing adoption of the AA ecosystem. Interestingly, adoption is scaling up, driven by benefits of the AA framework. Credit underwriting is currently the most widely adopted use case of the AA framework. It is evident by the fact that lenders have so far disbursed around Rs 60 billion in loans with the help of AA-based underwriting. Some banks and NBFCs have implemented AA-based journeys for several retail product segments. Lenders seem excited because of several benefits of AA adoption. They may include better customer experience and faster TAT, driving reduction in drop-off rates, lower instances of frauds, lower costs and more comprehensive data for underwriting.
Experts view the developments in the AA ecosystem as a definite positive for credit growth and asset quality for banks in the long term.
