India’s credit market faces challenges in its financial data sharing system, including lack of standardisation, incomplete credit bureau data, limited access to financial services, and lengthy loan disbursal processes. Account Aggregators (AAs) are emerging as a solution to these issues, enabling a more efficient and inclusive financial ecosystem.
AAs are revolutionising data sharing and empowering users and financial institutions. These platforms provide users with control over their financial data through consent mechanisms while enabling financial institutions to streamline processes, enhance credit assessment, and deliver personalised offerings.
AAs open numerous use cases, including loan assessment, personal finance management, investment advisory, insurance underwriting, tax reporting, and more. In the short term, AAs must expand coverage, integrate with investment platforms, work with government agencies, and provide detailed debt and tax information. AAs also empower women in self-help groups, micro and small businesses, and migrant workers by improving access to finance, digital competencies, and government schemes. For financial institutions, AAs offer customer acquisition, risk assessment, loan underwriting, and digital transformation opportunities. The paradigm shift towards empowering individuals with their data necessitates a strong foundation of enabling regulations, cutting-edge technology standards, and innovative institutions.
In India, the Data Empowerment and Protection Architecture (DEPA) is the framework for secure data sharing. DEPA’s implementation is facilitated by Account Aggregator Entities (AAEs), which play a crucial role in facilitating consent-based sharing of financial data. They collaborate with Financial Information Providers (FIPs), who hold customer financial data and Financial Information Users (FIUs), who utilise the aggregated data for offering financial services.
The technology components of AAs include API integration, data standardisation, consent management systems, data security and encryption, user interface and experience, identity verification and authentication, and system integration and interoperability. These components enable secure and seamless data exchange between individuals, AA’s, and FIPs.
The regulatory foundation of AAs is built upon the recognition of privacy as a fundamental right. It encompasses concepts such as the right to be forgotten, data portability, anonymisation, and consent as the foundation. Consent management is facilitated through electronic consent dashboards, ensuring explicit, informed, and revocable consent. The introduction of Consent Managers further strengthens the management of consent across multiple fiduciaries. The regulatory landscape for AAs is expected to evolve with the establishment of the Data Protection Authority and the implementation of sector-specific regulations under the Personal Data Protection Bill (PDP) and Privacy Bills.
The Sahamati Foundation plays a pivotal role in promoting the development and adoption of AAs. As a member-driven industry alliance, Sahamati provides a platform for collaboration, best practice sharing, and industry issue resolution. While not having a regulatory role, Sahamati works closely with the Reserve Bank of India (RBI) and other stakeholders to advocate for the interests of AAs and their customers. Funding for Sahamati comes from membership fees and sponsorships. Additionally, the RBI governs and implements the AA Framework, formulating guidelines, granting licenses, and monitoring compliance. Collaboration between the RBI, Sahamati, and other entities ensures the smooth functioning, innovation, and growth of AAs in India.
Addressing the design and implementation challenges of AAs is crucial for realising their full potential in promoting financial inclusion and innovation in India. Design challenges include creating awareness and adoption, ensuring data privacy and security, and managing technical complexity. Implementation challenges involve high costs, evolving regulatory frameworks, and limited participation of financial institutions. Overcoming these challenges will be vital in unlocking the benefits of AAs in expanding access to financial services and driving digital transformation in the Indian financial ecosystem.
Authors: Asawari Luthra and Abhishek Modi