How Account Aggregator Framework in Fintech Will Safeguard Your Financial Data?

October 1, 2021 Mutual Fund

Fintech is an essential part of the banking and financial services industry and has transformed the traditional understanding of financial operations. Fintech industry has grown undeterred by the Covid-19 pandemic, which has resulted in significant surge in online banking. Therefore, banks and Fintech companies are gearing up to handle the digital transformation and keeping up with the new normal trend in consumer habits.

Fintech has witnessed accelerated adoption amongst consumers, increased usage of smart devices, and improved connectivity. Moreover, the hyper-demanding customers are driving the need for digital transformation in the sector. Fintech opportunities allows you to enjoy the convenience and speed of managing your financial operations at your fingertips.

Amid the recent crisis due to the pandemic, Fintech has opened ways for many banks and financial institutions to overcome the challenges caused by the government restrictions like maintaining social distancing and other measures to prevent the spread of virus. The banking and financial services sector are on the verge of technology upgrade, extending the convenience to its customers by providing high security towards their sensitive financial data.

Fintech developments lead to advancement in technologies with enhanced convenience to the users and the open banking concept is gaining popularity in the sector. Open Banking is based around the idea that financial institutions and third party (Fintech) providers should build their backend systems in a way that enables both types of entities for a standardized flow of data from the providers and users of financial information.

Recently, Indian banking and financial services industry has been introduced to the new Account Aggregator (AA) network. It is a financial data-sharing framework that could revolutionize investing and credit, giving millions of consumers’ greater access and control over their financial records and expanding the potential pool of customers for lenders and fintech companies.

The launch of Account Aggregator network is the first step towards introducing open banking in India and empowering customers to digitally access and share their financial data across institutions in a secured and efficient manner.

On September 2, 2021, eight major banks in India, 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 network that will enable customers to easily access and share their financial data.

What is Account Aggregator framework?

An Account Aggregator (AA) is a type of RBI regulated entity (with an NBFC-AA license) that helps an individual securely and digitally access and share information from one financial institution (where they have an account) to any other regulated financial institution in the AA network. The data cannot be shared without the consent of the individual.

The Account Aggregator framework was created through an inter-regulatory decision by RBI and other regulators including Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI), and Pension Fund Regulatory and Development Authority (PFRDA) through an initiative of the Financial Stability and Development Council (FSDC).

Reserve Bank of India (RBI) has issued the licence for Account Aggregator network for banks and financial institutions in the financial sector. This system allows customers to avail various financial services from a host of providers on a single portal based on a consent method. Under this the consumers can choose what financial data to share and with the selected financial entity.

How will the Account Aggregator framework safeguard your financial data?

Account Aggregator empowers you with control over your personal financial data, which otherwise remains in silos (collection of data in an organisation that is isolated from and not accessible by other parts of the organization). It is a financial utility for security flow of data controlled by the individual.

Account Aggregator replaces the lengthy form that contains the terms and conditions of ‘blank cheque’ acceptance with a granular, systematic permission and control for each use of your data. It reduces the hassle Indian financial system involves like sharing physical signed and scanned copies of bank statements, running around to notarise or stamp the documents, or having to share your personal username and password to provide your financial history to a third party.

Earlier, Aadhaar e-KYC and CKYC were introduced for sharing of four ‘identity’ data fields for KYC purposes (eg: name, address, gender, etc). Similarly, Account Aggregator network allows sharing of transaction data or bank statements of savings/deposit/current accounts.

The AA network allows you to transfer your financial information pertaining to various accounts such as bank deposits, equity, mutual fund and pension funds to the entity that needs access to such information. Bank transaction data is available to be shared across the banks that have gone live on the AA network.

However, gradually the AA framework will make all financial data available for sharing, including tax data, pensions data, securities data (mutual funds and stocks), and insurance data will be available to consumers.

It has a three-tier structure: Account Aggregator – Financial Information Provider (FIP) – Financial Information User (FIU). FIP is a data fiduciary, which holds the customers data, whereas FIU is a lending bank that wants access to the individual’s data held by the FIP. Here, Account Aggregator provides a platform to share individual’s financial information. The FIU is required to initiate a request for consent by way of any platform/apps run by the AA network. This request will then be received by the individual customer through the AA. Such information is shared by the AA only after consent is obtained from the customer.

For example, while sharing your identity information via Aadhaar e-KYC, you receive a request and an OTP is generated to provide consent to share your data with the third party.

About data security:

Account Aggregators are not allowed to store, process or sell the data. The data AA’s 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.

The AA merely share the data from one financial institution to another based on an individual’s direction and consent. Contrary to the name, they cannot ‘aggregate’ your data. AA’s are not like technology companies, which aggregate your data and create your detailed profile.

Registering with an AA network is voluntary. Individuals can decide if they wish to join the AA network which the bank is using. You can choose the account you want to link, and share data from one of your accounts (for some specific purpose) to a new lender or financial institution, while giving ‘consent’ via one of the Account Aggregators. As a customer, you can reject a consent to share request at any time. If you have accepted to share data in a recurring manner over a period (eg: during a loan period), it can also be revoked by you at any time in future.

How customers can benefit from the Account Aggregator network?

An individual can register with an Account Aggregator through their app or website. AA will provide a handle (like username) which can be used during the consent process. Some AA’s may offer free service because they are charging a service fee to the financial institutions whereas, some may charge a separate fee to enable the service.

The two key services that will be improved for an individual is access to loans and access to money management. With the help of Account Aggregator, a lender can access tamper-proof secured data quickly and cheaply, and fast track the loan evaluation process so that a customer can get a loan.

If a customer wants to get a personal loan, there are several documents that need to be shared with the lender, which is a cumbersome process and affects the time taken to procure the loan and access to the loan account information. Account Aggregator resolves this issue by providing all the required financial data of an individual to the financial institution that has requested the same within few steps online.

With the launch of Account Aggregator framework, M Rajeshwar Rao, Deputy Governor, Reserve Bank of India, said, “AA’s 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.”

Account Aggregator Framework is an initiative that will compile all the digital footprints of your financial data at one place and make it easily accessible for the FIUs subject to every individual’s consent.

This article first appeared on PersonalFN here