Account Aggregator Network (AAN) and its regulation "EMPOWER IAS"

In news:

• The Account Aggregator system in banking has been started off with eight of India’s largest banks. In this newscard, we shall learn it in a FAQ manner.

 

What is an Account Aggregator?

• It is a Non-Banking Financial Company engaged in the business of providing the service of retrieving or collecting financial information pertaining to its customer, under a contract.
• It was created through an inter-regulatory decision by RBI and other regulators including  SEBI, IRDA, and PFRDA through an initiative of the Financial Stability and Development Council (FSDC)
• The objective of Account Aggregator (AA) is to aggregate all financial information of an individual

 

 

How does it work?

• ​​Account aggregator systems will act as an intermediary to collect data from Financial Information Providers (FIP) like Bank, NBFC, mutual funds that hold the consumer’s personal financial data. They share that with Financial Information Users (FIU) like the lending bank that wants access to the borrower’s data to determine if the borrower qualifies for a loan. Banks can play a dual role – as a FIP and as an FIU.
• However, for sharing customer data, the bank or financial institution will have to take the customer’s consent.

 

Significance:
 

• • For Consumers:
    • 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.
    • It permits users to control who gets access to their data, track and log its movement and reduce the potential risk of leakage in transit.
  • For Banks:
    • As an addition to India’s digital infrastructure, it will allow banks to access consented data flows and verified data. This will help banks reduce transaction costs, which will enable them to offer lower ticket size loans and more tailored products and services to their customers.
  • Reduce Frauds:
    • AA reduces the fraud associated with physical data by introducing secure digital signatures and end-to-end encryption for data sharing.

 

How would it improve an average person’s financial life?

• India’s financial system involves many hassles for consumers today.
• This includes sharing of physical signed and scanned copies of bank statements, stamp documents, or having to share your personal username and password to give your financial history to a third party.
• The AAN would replace all these with a simple, mobile-based, simple, and safe digital data access & sharing process.
• This will create opportunities for new kinds of services — eg new types of loans.
• The individual’s bank just needs to join the Account Aggregator network.

 

How is AAN different to Aadhaar eKYC data sharing?

• Aadhaar eKYC and CKYC only allow sharing of four ‘identity’ data fields for KYC purposes (eg name, address, gender, etc).
• Similarly, credit bureau data only shows loan history and/or a credit score.
• The AAN allows sharing of transaction data or bank statements from savings/deposit/current accounts.

 

What kind of data can be shared?

• Today, banking transaction data is available to be shared (for example, bank statements from a current or savings account) across the banks that have gone live on the network.
• Gradually the AA framework will make all financial data available for sharing, including tax data, pensions data, securities data (mutual funds and brokerage), and insurance data will be available to consumers.
• It will also expand beyond the financial sector to allow healthcare and telecom data to be accessible to the individual via AA.

 

Can AAs view or ‘aggregate’ personal data? Is the data sharing secure?

• 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 which aggregate your data and create detailed profiles of you.
• The data AAs 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.

 

Can a consumer decide they don’t want to share data?

• If the bank the consumer is using has joined the network, a person can choose to register on an AA, choose which accounts they want to link, and share their data.
• A customer can reject a consent to share request at any time.
• If a consumer has accepted to share data in a recurring manner over a period (eg during a loan period), it can also be revoked at any time later as well by the consumer.

 

How can a customer get registered with an AA?

• One can register with an AA through their app or website.
• AA will provide a handle (like username) which 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 AAs.
• Three more have received in principle approval from RBI (PhonePe, Yodlee, and Perfios) and may be launching apps soon.
• A customer can register with any AA to access data from any bank on the network.

 

What new services can a customer access if their bank has joined the AA network of data sharing?

The two key services that will be improved for an individual is access to loans and access to money management.

• If a customer wants to get a small business or personal loan today, there are many documents that need to be shared with the lender.
• This is a cumbersome and manual process today, which affects the time taken to procure the loan and access to a loan.
• Similarly, money management is difficult today because data is stored in many different locations and cannot be brought together easily for analysis.
• Through Account Aggregator, a company can access tamper-proof secure data quickly and cheaply, and fast track the loan evaluation process so that a customer can get a loan.
• Also, a customer may be able to access a loan without physical collateral, by sharing trusted information on a future invoice or cash flow directly from a government system like GST or GeM.