Page 28 - Banking Finance June 2022

ARTICLE

process with all regulated entities involved. The system personal and financial data with an unbounded set of entities
solves the problem of a customer's data scattered across for no specific purpose. Some researchers have questioned
banks and financial institutions and enables it to be the need for such sweeping mandates, especially when there
accessible at a single place, with explicit customer consent. is no guarantee of providing any specific financial services. The
The AAs themselves are data-blind, meaning they cannot self-regulation of AAs is also a cause of concern.
view or process the data of individual users.
Also, with AAs being classified as NBFC-AA by the RBI, they
From a banking perspective, the Account Aggregator system are the only NBFC (among eleven other types of NBFCs) that
has the potential to make lending and wealth management are not directly tied to any financial service and only
a lot faster, cheaper and more efficient. As the government facilitates the flow of financial information. Therefore, they
note stated, the AA framework is the first step towards may also fall beyond any RBI regulation. Some experts have
bringing open banking in India. It will also expand the potential proposed setting up an independent industry body that
pool of customers for lenders and fintech companies. regulates AAs and ensures strict security while sharing
confidential financial data of borrowers.
Also, the AA network will help curb financial fraud - as
information will be shared securely and digitally among Way forward
regulated entities. Previously, this information sharing
In general, the AA framework is likely to be advantageous
involved paper-based workflows as individuals had to get
to all stakeholders in the formal financial system. For the
their bank statements printed, stamped, and sometimes
BFSI and fintech industries, the framework has opened up
even notarized to prove the authenticity.
whole new opportunities to innovate to facilitate safer and
easier credit.
Further, we expect the AA framework to catalyse the
growth of micro and small businesses in India by opening up
Emerging technologies like AI and ML could now be applied
a new pool of potential borrowers who typically lack credit
to data shared by AAs in order to make credit access more
history, and otherwise find it difficult to avail formal credit
inclusive and disbursals much faster, saving both time and
from banks. Most SMEs seeking loans are left out of the
costs for all stakeholders. Moreover, it could completely
formal sector simply because of their inability to prove their
overhaul the credit-seeking process, especially in remote
creditworthiness. This is because of a lack of detailed and
areas, where proximity to physical bank branches is still
audited financial statements and investments and adherence
distant. Fintechs, too, can hugely contribute to development
to regulatory procedures and compliances.
of new and robust business models around the Account
Aggregator ecosystem in India.
Even for those micro or small businesses who qualify for a
bank loan, availing one is a complicated and long-drawn
The AA system holds perhaps the biggest advantages and
process due to two critical factors concerning the formal
opportunities for end consumers, both individuals and
sector's credit assessment process. The framework would
businesses. It will not only remove unnecessary hassles and
be of particular benefit to first-time entrepreneurs or micro
privacy risks in sharing confidential financial data, but also
business owners.
improve the availability of instant loans and other financial
products at much better terms - which as we noted earlier,
Challenges will be a huge boost for micro and small businesses with no
User consent and data security remain two key concerns credit history.
under the AA framework. Given that a substantial number
of potential users and individual beneficiaries may not fully However, there is equally an urgent need to educate ordinary
understand the implications of their consent, we believe that consumers about the AA system and the system of informed
all stakeholders including the RBI need to undertake a consent. We believe both the government as well as RBI must
sustained awareness campaign to ensure that the user focus on expanding their digital literacy programmes to all
consent is informed, and not just a tick in the box. parts of the country. To maximise the AA framework's
potential, it is imperative for end consumers to become
Further, the framework allows for sharing of all sensitive informed and more empowered users of their own data.

28 | 2022 | JUNE | BANKING FINANCE