India Launches Account Aggregator: Expanding Financial Inclusion

India's Banks Launch Account Aggregator System

Five years ago, India’s leading banks established the UPI rails, a system that facilitated digital payments for over 150 million individuals within the South Asian region. Currently, a multitude of companies – including both domestic entities like Paytm, PhonePe, and CRED, as well as international corporations such as Google and Facebook – support the UPI infrastructure, which processes approximately 3 billion transactions monthly.

A Second Phase for Indian Banks

Banks are now poised to initiate their next significant undertaking.

On Thursday, a consortium of eight Indian banks declared their intention to implement – or are in the process of implementing – a system known as Account Aggregator. This system is designed to empower consumers to consolidate all of their financial data into a single, accessible location. (The participating banks include HDFC, Kotak, ICICI, Axis, SBI, IndusInd, IDFC, and Federal, with four initiating the rollout immediately and others planning to follow suit shortly.)

The Core Objective of Account Aggregator

The primary goal of the Account Aggregator (AA) framework is to centralize an individual’s complete financial information, as stated by M Rajeshwar Rao, Deputy Governor of the Reserve Bank of India, during a virtual event on Thursday.

This new system enables financial institutions, tax authorities, insurance providers, and other related firms to gather customer data – with explicit consent – to gain a more comprehensive understanding of potential clients, make well-informed decisions, and streamline transactional processes.

User Control and Data Sharing

Users, by granting consent – a process requiring minimal interaction – can securely share their financial details between Account Aggregator participants via a centralized, API-driven repository. Individuals retain control over the duration for which their data is shared with each participant.

Addressing Data Privacy and Control

Globally, many nations have established privacy regulations recognizing individual data rights. However, despite these rights, effectively exercising control over data has proven challenging for consumers.

Siddharth Tiwari, head of the Bank for International Settlements in Asia and Pacific, explained that this difficulty arises from two key factors. “First, consent is often sought when consumers are already engaged in a service, resulting in broad and encompassing agreements.”

“Second, newly generated data is frequently stored in isolated, proprietary systems in incompatible formats. This limits consumers’ ability to share their information effectively, effectively positioning data custodians as de facto owners,” he added. He emphasized that the Account Aggregator system is designed to mitigate these issues, potentially fostering a consent-based data sharing system that empowers consumers while preserving their control.

Expanding Access to Financial Services

The Account Aggregator initiative also aims to improve access to financial services, including loans, for both individuals and businesses. Current credit bureaus in India hold data on only a small portion of the country’s 1.4 billion citizens, hindering access to capital for many.

Nandan Nilekani, Chairman of Infosys and an advisor to the initiative, highlighted during Thursday’s event that many individuals and businesses have sufficient digital financial activity and cash flow to qualify for financial products. “Leveraging digital footprints, with consumer consent, can unlock significant credit opportunities for small businesses and promote financial inclusion.”

Future Expansion and Global Recognition

Discussions are underway to integrate telecom operators into the system, indicating its potential for broader application. “The architecture is now adaptable to various other industries,” Nilekani stated, citing healthcare, fitness, and testing labs as potential examples. “India has developed a robust infrastructure at scale, enabling citizens to utilize their data – a model gaining international recognition.”

Practical Applications and Benefits

Rahul Mathur, founder and CEO of BimaPe, an insurance aggregator startup, explained to TechCrunch how Account Aggregator can streamline processes. “For loan applications, instead of submitting bank statements for the past three years, users can simply authorize data transfer via AA and revoke access after approval.” He further noted that it simplifies income verification for self-employed professionals seeking term insurance.

The Account Aggregator system is expected to significantly expand the potential customer base for online insurers, lenders, and other industry players.

A Connected Financial Ecosystem

Sumit Gwalani, co-founder of Fi, stated, “This represents a major advancement towards a connected financial ecosystem and will be instrumental in Fi’s mission to empower working millennials to manage their finances effectively. We are excited for our users to experience the convenience and power of AA integration once it becomes available to all.”