Episode 6 – Fintech – Account Aggregators – What are they and what do they mean for the banks, consumers and the ecosystem in general?
Around 2 weeks back, RBI launched Account Aggregators to digitise 3-way consent-based data-sharing among Users, Fin. Info. Provider (FIP) & Fin. Info. User (FIU).
So, what does an Account Aggregator (AA) do?
AA provides a consent-based digital data sharing platform to Users, Financial Information Providers or FIP (banks/NBFCs, MFs/ Insurers/ brokers, tax, etc.) and Financial Information Users or FIU (banks/ NBFCs, MFs/ Insurers/ brokers/ wealth managers, etc.). This would allow Users to conveniently & digitally share information from FIPs to FIUs to get better deals on loans & financial mgt. & have one place to manage financial assets. FIUs benefit with digital & verified data. While FIPs are losing customer exclusivity, new acquisition will be easier. It works on symbiotic relationship among the three stakeholders, so among banks only those that are FIP can be FIU.
RBI exclusively grants the license & monitors AAs. Entities regulated by RBI, SEBI, IRDA, PFRDA etc can be FIP. Data privacy, consent controls have to follow strict standards as per Data Empowerment and Protection Architecture (DEPA) provided by Govt. 'Consent' layer is unique to India.
How does an Account Aggregator work?
Source – PWV, Abhishek Kumar
AA can be both a challenge and an opportunity for incumbent banks & NBFCs , even if they lose client-exclusivity and see higher churn, they gain from expansion in market esp. SME & retail. In the NLF space, incumbents can get better insights into customer assets. Incumbents can reach into smaller markets & non-prime clients. Fintech platforms in lending (loans & marketplace), robo-advisory, neo-banks will get a boost from AAs. Some platform firms focused on data can be negatively impacted. This is definitely a driver of increased partnerships between banks/ NBFCs/ NLFs with fintech platforms.
AA is a key enabler and component of the India Stack.
Source – Abhishek Kumar
There is a strong feeling across the fintech community that AA can see strong adoption over 3-5 years as users/ FIPs/ FIUs come on-board. It will simplify the process of sharing info. & monitoring fin. assets as customers just provide ID (with an AA). This is quite similar to UPI, a platform that now annualises $1tn in payments. So far, 15 banks & NBFCs are on-board and sharing only limited data (deposit), but we see more among lenders/ NLFs/Govt. over the next 1-2 yrs, which should drive user-adoption.
SMEs probably will be a major beneficiary of this and also the fintechs focusing on SME segments – This will democratize data availability and sharing here and will expedite credit to the credit starved SME sector.
What’s the AA landscape currently then?
There are currently 4 operational AAs and 3 in principle. This could rise to 15-20 over time. CAMS, Finvu, OneMoney and NESL Asset Data Ltd are the 4 operational AAs and the Perfios, PhonePe And Yoodle Finsoft are the 3 AAs with in principal approvals. Banks/NBFCs like Axis Bank, Bajaj Finserv, LendingKart, Neogrowth Credit, SBI amongst others have limited data sharing and will probably expand their services.
Interestingly, there is news that 8 banks have joined the AA network - Axis, ICICI, HDFC, IndusInd Bank, State Bank of India, Kotak Mahindra Bank, IDFC First Bank, and Federal Bank.
In terms of monetization capabilities, AA may take fees from FIUs (users/ FIP may not pay) as they identify business prospects -- say a Rs5-25/transaction fees. Personally, I feel AAs have a better monetisation model than UPI, which lacks monetisation due to zero MDR & restriction on data analytics. However, competition here (7 licenses may rise to 15-20) might limit profitability.
Latest news in the Fintech Industry
https://www.livemint.com/money/personal-finance/account-aggregators-these-banks-have-joined-it-how-it-will-benefit-customers-11631417562966.html