The 21st century is known as the age of Digital Information due to the quick variation from an industrial economy to an economy of Information Technology, which has occurred in this era. Sensible to this change, individuals have been more glad about the allocation of their information online. This has assisted digital development like payment wallets, online banking, etc.
Financial organizations today use online account scraping, manually uploading statements, ownership with banks, and directly linking to companies’ payroll software to gather people’s financial information- all of which are tiresome and time-taking processes.
As the best solution to this issue, the RBI brought the NBFC Account Aggregator Framework in 2016. The framework was introduced in September 2021.
This article discusses the system of account aggregation in India, its features, role, and its effect on the Indian economy and the fintech industry.
What Does the Account Aggregation System Represent?
According to the RBI notification, an account aggregator is an NBFC that tackles an account aggregator’s business. An account aggregator’s business is further described as being given under a contract, the service of recovering or gathering this financial data referring to its client, as may be stipulated by the bank from time to time, and aggregating, organizing, and featuring such details to the customer or any other financial data of the user as may be stated by the bank.
A person may have various financial assets that may be spread across diverse financial tools, intermediaries, and even regulators. For instance, an individual X may have FD with the SBI, which comes under the regulations of the RBI, and life insurance with LIC, which comes under the regulations of IRDAI. In addition, X may have investments in a mutual fund in Aditya Birla Sun Life, which is regulated by the SEBI. When X wishes to file for a loan, he would have to build up all his financial details separated crossways these diverse tools and submit them to the organization he wants to take a loan from. This is a time-taking method. It is at this phase that the account aggregator enters.
The AA system has three key elements– the FIU (Financial Information User), FIP (Financial Information Provider), and the account aggregator. FIP is the party possessing the financial details of the client. Instances of FIP are NBFCs, banks, mutual fund repositories, etc. FIU is the group that looks for the financial data of a customer. An instance of FIU is the loan providing or lending bank. Therefore, banks can be both FIUs and FIPs.
Regulation of the Account Aggregation System in India
The account aggregation framework is controlled by SEBI, RBI, IRDAI, and PFRDA (Pension Fund Regulatory and Development Authority). Any company listed and managed by these bodies can be qualified as FIP or FIU. It is not required for any listed body to join the account aggregation environment. The account aggregation system is a different process and is detailed under the RBI master mandate.
Only an organization can handle an account aggregator’s business, except that an additional financial sector governor manages such body, and the entity accumulates only the financial details related to the consumers of that sector. In addition, the company getting listed as an account aggregator must have a net-owned capital of approximately 2 Crore.
The instructions also list the different responsibilities of an account aggregator. Key among them is the requirement for specific compliance of the customer to offer services; sharing details only to the customer to whom it connects or to the FIU certified by the customer; not to undertake any business apart from the account aggregator’s business; not to use 3rd party services for an account aggregator’s business, and not to sustain financial information of customers given by the FIPs.
Together with these responsibilities, the guidance gives the right to the users to take back their compliance to get particular details. Users also have the authority to see the consent records offered by them and the FIU users with whom the financial data has been allocated.
To give extra power to the customers, the master rules have allowed a particular consent framework. Customer consent is vital for recovering, distributing, or relegating financial data. This consent is to be gathered by a uniform consent object, including a set of information. This consent object can also be acquired in electronic format.
The rules also impose a structure for data safety and technical formulas for sleek and safe data movement. The account aggregator system is also accessible via the account aggregator application. Users can log in to their account by this application and keep a record of their consents, renounced consents, and data appeals created by the FIU.
What an Account Aggregation System Signifies for the Fintech World in India?
The fintech industry will be the most impacted sector with the advent of the account aggregator’s framework. As the framework connects financial data with technology, this system may effectively become the regulation of implication for the fintech industry. The structure of the account aggregation in India will carry a standard layout for financial data over fintech players. It will also assist in making a fixed set of data safety and privacy regulations that will be willing to the supplies of the master directives. Incorporation of fintech players into the account aggregation system, like Anumati, will also help create a higher trust level with their clients.
NBFC-AA architecture is a prerequisite given the transformation of this world into an IT world. Not just is it a technological change that would commonly be what was before time-taking anticipation, but it is also a higher level for India, letting it be one step nearer to being a completely grown country. Thus, it can be said that the account aggregator system is undoubtedly the latest fintech innovation in India.
Conclusion
Overall, accepting the framework of account aggregation in India boosts the process and decreases the lending and asset management cost for people. So that reduces the possibilities of lending fraud to an increased extent and leads to the path of the Fintech revolution.
