Launched in September 2021, the Reserve Bank of India’s Account Aggregator framework has the potential to be a powerful tool in streamlining digital lending. An account aggregator is a data-sharing protocol between financial institutions, such as banks, NBFCs, insurance companies etc. They are RBI-licensed digital entities which require consent from customers to retrieve their financial data from a financial information provider (FIP) to share with a financial information user (FIU).
The account aggregator (AA) ecosystem has the power to transform the digital lending market in India, which grew from around USD 9 billion in 2012 to close to USD 110 billion in 2019. The account aggregator ecosystem could pave the way for an open banking system in India as well as making a range of financial products more accessible to a wide range of customers.
How Does The AA Framework Work?
The AA framework hinges upon the customer’s consent: the customer’s data can only be provided by the FIP to the AA when the customer grants their consent. The flow of information is:
The financial information cannot be accessed by anyone except the relevant FIU, as it is shared in an encrypted form by the FIP. The AA cannot view the information, and as per RBI guidelines, cannot store, sell, or otherwise process the data. This ensures that sensitive financial information remains confidential and can only be accessed by the relevant party after the customer consents.
Advantages of the AA Framework
The AA framework comes with a number of advantages, especially for the MSME sector.
One of the besetting woes of Indian MSMEs is the lack of access to credit, due to the scepticism of traditional banks about MSMEs, as well as the lack of collateral and good credit scores. Digital lending is therefore a better option, and the account aggregator framework can be a powerful tool in making this avenue faster and more secure– and therefore more favourable– for the MSME sector.
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