Since its launch in 2016, Unified Payments Interface (UPI) has revolutionized digital payments in India. From the smallest of roadside shops to largest of malls, almost every store accepts UPI payment. 3.5 billion transactions took place on UPI in month of August alone.
Now another historic step to further spread digitization of economy has been launched- Account Aggregators(AA).
“Last week, a new revolution got going in India, which deserves to be far more widely noticed than it seems to have been…launch of the Account Aggregator framework. While the world has been harping on about data protection, India has quietly devised…” https://t.co/Fxi87XwKIr
— Nirmala Sitharaman (@nsitharaman) September 6, 2021
Next Big Step in India’s Digital Economy
Account aggregators will boost credit facilitation in the country. For getting a loan currently, an MSME or retail loanee has to collect credit information, salary slips, mutual fund investments, insurance etc from multiple financial institutions which is a big hassle. The financial institution then has to verify them individually. But AA removes all these hurdles by bringing together data of the customer in one secure space which the financial institution can now easily access.
As explained, account aggregators are licensed entities by the RBI to enable the flow of data between Financial Information Providers (FIPs) and Financial Information Users (FIUs). FIPs are institutions which hold customer data and FIUs are entities which consume data to offer better service, underwrite loans, etc.
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 AA framework was created through an inter-regulatory decision by RBI and other regulators including Securities and Exchange Board of India, Insurance Regulatory and Development Authority, and Pension Fund Regulatory and Development Authority (PFRDA) through and initiative of the Financial Stability and Development Council (FSDC). The licence for AAs is issued by the RBI, and the financial sector will have many AAs.
The AA framework allows customers to avail various financial services from a host of providers on a single portal based on a consent method, under which the consumers can choose what financial data to share and with which entity.
Support from Indian Industry
Nandan Nilakeni said that like the UPI, which scaled rapidly from 1 million transactions in 2016 to over 3 billion transactions per month in 2021, Account Aggregator framework, too, has the potential to take off and democratise credit in India.
He added that working capital is often not available to small businesses because of information asymmetry. If a business has a digital footprint of its own from payments made to vendors, purchases made by consumers, of invoices, taxes etc, that information can be used by a lender to make a decision to lend to that MSME.
Harshvardhan Lunia, Founder & CEO at Lendingkart said AA is going to bring massive data transformation. He added that, “going ahead a large number of SMEs can be reached out without physical branches and it will transform the credit penetration. As we go deeper into this, open banking works wonderfully as India is underserved when it comes to credit and other financial products. A large push will come from awareness and ecosystem-level adoption.
With Account Aggregator ecosystem being operationalized, formalisation and digitisation of Indian economy has received another big boost