Tag: Blog

Understanding Account Aggregator Framework (AA) from the end consumer’s perspective

 1.1 Introduction:

Mr Sampath, who was working as a manager in a factory and wanted to avail housing loan, had to run from pillar to post to collect his financial documents including bank statements from his multiple banking partners to arrive at his financial position. For the last many years, Mr. Sampath also had to approach all his bankers and mutual funds advisers to arrange for him his financial records to file his Income Tax return (ITR).

 Like Mr. Sampath, we also face similar situations in our day-to-day lives, where we have to approach our multiple financial services providers viz., Banks, NBFCs, Stock Brokers, Agents, etc. to consolidate our investments and loan position.

 This particular issue has been a pain point for many especially while accessing credit, making investments, and having a consolidated status of financial relationship across the financial eco-system. However, with the advent of the Account Aggregator Framework (AA), there has been a sigh of relief for many of us. Now, there will be a comprehensive data-sharing mechanism among the financial service providers such as banks, and NBFCs. This data sharing will be pure with your consent in order to facilitate easy availability of financial records (bank transactions etc.) which could be used to avail services such as credit etc.

 1.2. Do we need the Account Aggregator Framework in India?

The answer is Yes. Account Aggregator gives customers the potential to share data easily between different financial service providers, by consolidating data in one place and providing a single digital framework to share it in real-time. No more running around collecting documents to open accounts, file for taxes, and get loans.

 AA framework is a safe, consent-based framework giving you control over your data and quicker access to financial services, which means Mr. Sampath would no longer need to run door to door to his lenders to access his transaction data. Mr. Sampath can easily use the AA infrastructure to access his details of the transaction using the consent mechanism, which is very safe and secure and transact with much-needed ease.

 1.3 As a customer what are the advantages to the AA framework?

As a customer, you have the following advantage to access your financial records using the AA framework:

 1.      User-controlled data sharing

2.      Unified consent management

3.      Frictionless means to move data

4.      Real-time access to financial services

 1.4 As a customer what I should know about the AA framework?

As a customer, you should also know that under the account aggregator:

 1.      AA acts as a conduit and does not process the user’s data.

2.      AA is ‘data-blind’ as the data that flows through an AA is encrypted.

3.      AA can’t store any user’s data preventing potential leakage and misuse.

 In today’s world, when Regulators across the globe are harping on data localization and data privacy as important deciding factors in handling customer data, Mr. Sampath need not worry about using the AA framework. The AA is recognized by the Reserve Bank of India (RBI) and to operate as AA, it needs to meet certain data security standards stipulated by the regulator. Hence, the AA framework or mechanism is a safe and reliant mode of data sharing.

 1.5 How Account Aggregators Operate in India?

Account Aggregators are registered with the RBI (the Apex Bank in India) and they share customer data securely between Financial Information Providers (FIPs) and Financial Information Users (FIUs).

 ·      Financial Information Providers (FIPs): organizations that hold your financial data — e.g. banks, insurance companies, mutual funds, pension funds, etc.

 ·      Financial Information User (FIUs): organizations that consume financial data to provide consumer services — e.g. banks, lending agencies, insurance companies, personal wealth management companies, etc.

 An Account Aggregator will facilitate the process of consent. Account Aggregator will be used to transfer financial data from FIPs to FIUs. Mr. Sampath can very well construe that the Account Aggregator is very much like a central data registry that helps share between two parties under consent without storing it.

 Source – MoF, GOI, India

 1.6 Do I get empowered as a Customer If I use the Account Aggregator framework?

The answer is Yes. the Account Aggregator (AA) network, a financial data-sharing system that could revolutionize investing and credit, giving millions of consumers greater access and control over their financial records and expanding the potential pool of customers for lenders and fintech companies. Account Aggregator empowers the individual with control over their financial data, which otherwise remains in silos.

 As per the Ministry of Finance, Government of India, the Account Aggregator framework is a first step towards bringing open banking in India and empowering millions of customers to digitally access and share their financial data across institutions securely and efficiently.

 It is not to be forgotten; the Government has taken up numerous steps to facilitate digital transactions under Digital India initiatives. There are numerous examples of it such as UPI (a virtual payment address, bank-to-bank smooth transfer mechanism), extending the Central KYC (cKYC) for non-individuals, etc. Account Aggregator is one of such concrete steps to ease the exchange of financial information of customers among the financial service providers to facilitate credit and investment decisions.

 Source – MoF, GoI, India

 1.7 The Seven key takeaways from the Account Aggregator Framework:

Here are the top 7 takeaways Mr. Sampath and we all as a customer should know about the Account Aggregator Framework. It could be a revolution in the banking and fintech space as it will enable smooth digital loan and investment possibilities, especially moving from traditionally based credit evaluation to a Cash flow-based credit evaluation and loan disbursements.

 1) Is my data safe – Account Aggregators cannot see the data; they merely take it from one financial institution to another based on an individual’s direction and consent. Contrary to the name, they cannot ‘aggregate’ your data. AAs are not like technology companies that aggregate your data and create detailed profiles of you.

 The data Account Aggregator share is encrypted by the sender and can be decrypted only by the recipient. The end-to-end encryption and use of technology like the ‘digital signature’ makes the process much more secure than sharing paper documents.

 2) Registering with an AA is fully voluntary for consumers.

 3) How do I register with an Account Aggregator – You can register with an Account Aggregator through their app or website. Account Aggregator will provide a handle (like a username) that can be used during the consent process. Today, four apps are available for download (Finvu, OneMoney, CAMS Finserv, and NADL) with operational licenses to be Account Aggregators. Three more have received in-principle approval from RBI (PhonePe, Yodlee, and Perfios) and may be launching apps soon.

 4) A customer can register with any Account Aggregator to access data from any bank on the network.

 5) Is Account Aggregator services chargeable – This will depend on the Account Aggregator. Some may be free because they are charging a service fee to financial institutions. Some may charge a small user fee.

 6) An Account Aggregator is a type of RBI-regulated entity (with an NBFC-AA license) that helps an individual securely and digitally access and share information from one financial institution they have an account with to any other regulated financial institution in the Account Aggregator network. Data cannot be shared without the consent of the individual.

 7) The Account Aggregator framework was introduced to make sharing financial data easier, quicker, and more secure. It is the RBI that issues the master direction for the Account Aggregator framework and later the entire data flow infrastructure was designed keeping in mind customer centricity at its core.

 1.8 Conclusion:

So, do check out the applications of the Account Aggregators and register yourself to access the large pool of consented, and controlled data-sharing platforms that could help you do business or access credit with ease, comfort, and in a timely manner.

Remember that, it is not only easy of doing business but also easy to live.

Thank you,

Abhishek R Sharma

Regulatory Compliance Professional

In the financial world, trust is everything. Customers need to trust that their money is safe and that their Banks, Payment Settlement Agencies such as Payment Aggregators, Credit Information Companies, Wallet providers, Pre-paid Instrument Providers, Token based service providers such as networks etc.,(“here in referred as financial institutions) are acting in their best interest. Regulators (like in that of Banking, Insurance, Securities, and Payments) need to trust that financial institutions are following the rules and not taking unnecessary, uncalculated risks which are beyond the regulatory framework. And financial institutions need to trust each other to keep the system running smoothly i.e., healthy competition.

One of the ways to build trust is through regulatory compliance. Regulatory compliance means abiding by the statutes, rules, regulations, and stipulations as per the law of the land. By following the rules and regulations set forth by governing bodies, financial institutions can demonstrate their trustworthiness to all parties involved.

But, how do you measure trustworthiness?

One equation suggests that
“Trustworthiness = Credibility + Reliability + Intimacy ÷ Self-Orientation.”

Credibility refers to the expertise and knowledge of the financial institution. Are they knowledgeable about the regulations and able to comply with them?

Reliability refers to their ability to consistently follow through on their promises and meet expectations.
Intimacy refers to the level of understanding and connection between the financial institution and its customers or regulators. and;

Self-Orientation refers to the degree to which the financial institution puts its interests ahead of others.
The Trust Equation was first introduced in 2000 by author David Maister.

Financial institutions can increase their trustworthiness and build stronger relationships with customers, regulators, and other institutions by focusing on building credibility, reliability, and intimacy while minimizing self-orientation.

In this way, regulatory compliance is not just about following the rules – it’s about building trust and creating a stronger, more stable financial system for everyone.

Don’t you agree with me on this?

To illustrate further, the different components of the trustworthiness equation in the context of regulatory compliance in the financial world are as follows:

Credibility: A financial institution can demonstrate its credibility by deeply understanding the regulations and how to comply with them. For example, a bank might have a team of regulatory compliance experts who specialize in regulatory compliance and have compliance acumen to guide businesses to run effectively without disruptions and external events.

Reliability: A financial institution can demonstrate its reliability by consistently following through on its promises and meeting expectations. For example, a bank might have a strong track record of submitting accurate and timely reports to regulators, or of resolving customer complaints promptly and satisfactorily.

Intimacy: A financial institution can build intimacy by developing a deep understanding of its customers’ needs and concerns, and by being transparent and open in its communications. For example, a bank might have a dedicated customer service team that takes the time to listen to customers and address their concerns, or it might regularly publish reports on its website that explain its regulatory compliance efforts in plain language.

Self-Orientation: A financial institution can minimize its self-orientation by putting the interests of its customers and regulators ahead of its own. For example, a bank might choose to invest in additional compliance measures even if it means sacrificing short-term profits, or it might voluntarily disclose potential conflicts of interest and take steps to mitigate them.

By focusing on these four components, a financial institution can build trust with customers, regulators, and other institutions, and demonstrate its commitment to regulatory compliance.

Overall, measuring trustworthiness is a complex task that can involve multiple approaches and metrics. By focusing on key elements of trust and taking a holistic view of the situation, regulators can assess the trustworthiness of financial institutions and ensure that they are complying with regulations.

Abhishek R. Sharma
Regulatory Compliance Professional

Picture courtesy – Internet.