India’s Account Aggregator Framework Is Set To Transform Fintech Beyond Lending; Here’s How

You’ve been hearing about this new technology that is coming through as a part of IndiaStack — the Account Aggregator. The premise sounds simple, but it is truly ingenious. End users can link their financial accounts, starting with a handful of banks that are live. They can subsequently share their financial history with businesses requesting it. 

Think of every single time you had to log into netbanking, go through the generate statement process and then mail or print and share it. That is now officially a thing of the past for processes that are leveraging this new ecosystem. Once you hear it, and actually experience the flow, you’ll despise going back to the status quo of document sharing. 

If you’re wondering, why haven’t you heard or experienced this technology so far, the answer to that is somewhat disappointing. Data is now pretty much used in every single BFSI product right from customer onboarding to the complete product journey. So, one would expect that even on just banking data, institutions both fintech and BFSI alike, would be all over this? 

Sadly, making elephants dance is easier said than done. 

With the principle of reciprocity being a strong underlying principle for business participation to share and consume data, the incumbents need to be aligned on what their motives are to participate in the ecosystem. 

More often than not, that incentive, to begin with, has been lending. Most of the fundamentals in a lending journey around affordability, underwriting, propensity to pay and collections are driven by information customers provide. 

Banking data acquired via the account aggregators work on pain points like the authenticity of the data, skipping OCR and so on. That is where most participating Financial Information Users (FIUs) of the AA ecosystem have begun their journey. 

So, the subset of customers whose primary banks are live, and they are purchasing a lending product from an FIU – who’s using AA data in the said product – that subset is a small number at the moment. But it plays a critical role in helping businesses tip their toes before diving into the deep end of what’s possible with the Account Aggregator. 

Equally important, businesses are able to crunch the math on unit economics and AAs, working out their pricing as well. 

What Does The Deeper-End Of Account Aggregator Look Like?

First up, with the launch of GeM-Sahay on the OCEN protocol, we’ll see GST data coming through. Although that pertains to more lending, GST data is critical for an information collateral economy. 

Next up, a lot of insurers such as Max Life have realised what a game-changer this ecosystem can be. Even though insurers will be Financial Information Providers (FIPs) by sharing policy and ULIP data, the trade-off seems well worth it even with just banking data to begin with for them. The new premium edition has flatlined for this quarter and has been on a downward trend with Covid making insurers risk-averse. 

Expect that to reverse as a double whammy of financial data via the Account Aggregator and health data via Ayushman Bharat Digital Health Mission starts to come through this calendar year. 

Another critical mass-market use case that will take Account Aggregators mainstream is Personal Finance Management (PFM). As per Sahamati’s website, nine registered investment advisors such as Groww and IndMoney are in various stages of integrating Account Aggregators in their product journeys. 

If you’ve ever complained about giving SMS access, email access, uploading documents, email forwarding, expect that to be a thing of the past. If lending brought stickiness and proved out the model, PFM will take the AA ecosystem mainstream. 

Securities firms vying for the financial super-app route will absolutely double down on the Account Aggregator. Relevant and personalised cross-selling is the super app’s bread and butter. With PhonePe also foraying into the AA space with an NBFC-AA license, expect fireworks on that front as well. 

With most banks having their card entities within their banks (barring a couple like BoB Cards and SBI Cards), credit card transactional data will also be available for Information Users to leverage. Think personalised rewards, wallet share insights and potential democratisation of some of CRED’s features.

AA Murky On Dematerialised Assets Classes

On one hand with formats such as NSDL/CDSL CAS having been around for a while, one would expect getting that data going would be straightforward. But with institutions like depositories being the size they are, I am not very confident at the speed at which they’ll move. 

Still, the optimist in me sees that NSDL e-governance having the AA license will move the needle on that front, the timelines remain hazy though. With that falling in place, however, wealth and portfolio management will change absolutely for good.

One last area I would like to cover with tax season around the corner, is, of course, the ITR experience. If you’re filing any form apart from ITR-1, you know the paperwork you end up sharing with a CA or portals like Cleartax and Quicko. 

The experience has almost become a ritual now where I spend a whole week sending documents back and forth with my CA sharing all investment proofs, various statements. There are so many other ways I would love to spend that week and hopefully, we’ll see some of that starting this April at least with things like interest certificates and bank statements. 

Overall, the future of financial services in post-AA India will be absolutely something awe-inspiring, showing the world how Open Finance is done. Enough individuals and organisations are working around the clock as TSPs to enable this transformation.