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Explained: Account Aggregators - Work, Significance and Framework

Shikha Goyal

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India's eight leading banks, State Bank of India, ICICI Bank, Axis Bank, IDFC First Bank, Kotak Mahindra Bank, HDFC Bank, IndusInd Bank, and Federal Bank have joined the Account Aggregator (AA) network on September 2, 2021. This will help customers to access and share their financial data. 

Since 2016, the framework was under discussion and in the testing phase for some time and now it will be open to all customers.

About Account Aggregator (AA)

Account Aggregator (AA) is a framework that facilitates the sharing of information in a real-time and data-blind manner between regulated entities.

As per RBI, an AA is a non-banking financial company that provides business, under a contract, the service of retrieving or collecting financial information pertaining to its customer.

It is also occupied in consolidating, organising, and presenting such information to the customer or the other financial information user as could also be specified by the bank.

Account Aggregator allows the flow of data between Financial Information Providers (FIPs) and Financial Information Users (FIUs)

The AA architecture is based on the Data Empowerment and Protection Architecture (DEPA) framework.

RBI will issue licence for AA and the financial sector will have many AAs.

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Framework of Account Aggregator (AA)

It was created through an inter-regulatory decision by RBI and also other regulators like Securities and Exchange Board of India, Insurance Regulatory and Development Authority, and Pension Fund Regulatory and Development Authority (PFRDA) through an initiative of the Financial Stability and Development Council (FSDC). 

How does an Account Aggregator (AA) work?

It consists of a three-tier structure namely Account Aggregator, FIP (Financial Information Provider), and FIU (Financial Information User).

FIP is the data fiduciary which means holds the data of customers. It can be a bank, NBFC, mutual fund, insurance repository, or pension fund repository.

On the other hand, FIU consumes the data from an FIP to give several services to the consumer. An FIU is a lending bank that requires access to the borrower's data to determine if the borrower qualifies for a loan. 

Therefore, we can say that banks play a dual role as an FIP and as an FIU.

As per the M Rajeshwar Rao, Deputy Governor, Reserve Bank of India, “AAs enable secure, consented data flows while protecting user privacy. In conjunction with other platforms like the UPI, Account Aggregator creates in India the most cutting edge digital financial infrastructure in the world."

Significance of Account Aggregator (AA)

- It will allow customers to take benefits of several financial services from a host of providers on a single portal. It is based on a consent method in which the consumer can decide what financial data to share and with which entity.

- It lowers the need for individuals to wait in long bank queues, use internet banking portals, share their passwords, or look out for physical notarisation to access and share their financial documents.

- This will help the bank in reducing transaction costs and enable them to offer lower ticket size loans and more tailored products and services to their customers.

- This new framework makes it possible for banks, tax authorities, insurers, and other financial firms to collect data of customers who have provided their consent to get a better understanding of their customers and ensure smoother transactions.

 - It will reduce the fraud related to physical data by introducing secure digital signatures and end-to-end encryption for data sharing.

Way Forward

Various numbers of Small and Medium Enterprises (SMEs) can be reached without physical branches and it will change the penetration of credit. When we go deeper into this, open banking will also work properly as India is underserved when it comes to credit and other financial products. 

The framework of AA can also be extended to handle data from several other domains also. 

According to Manoj Viswanathan, MD & CEO of HomeFirst Finance, “The AA framework is an excellent initiative that will compile all the digital footprints of the customer at one place and make it easy for lenders like us to access it. It will enable us to provide very quick turnarounds to our customers."

Source: indianexpress

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