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Earlier this month, India launched the ‘account aggregator’ network, which is a system that aims to simplify access to financial data. As of now, 8 major banks have joined the framework with a few FinTech firms also coming on board.

The Account Aggregator network, or AA, is an RBI-regulated entity. AA’s will essentially act as the facilitator of data between banks and financial institutions. If a person or a business wants to secure a loan, they will need to provide certain financial information to the lender relating to themselves to secure the loan. The AA will access this data and share it with the institution on the loan-seekers behalf, with their consent.

The purpose of the system is to make access to credit more efficient in India. Currently, MSMEs face a shortage of credit which hinders their growth. They also have issues with respect to having transparent and easily accessible financial records. The AA system will help make it easier for them to secure funding as the aggregator will be linked to their bank account.

To use the AA system, an individual or a business must first open an account with an aggregator. They must then link their bank accounts/insurance policies/mutual funds to their AA account. When the user is looking to secure a loan, the loan provider will ask for certain information which they can now provide through the AA network. The AA network will then ask the user for their consent to go ahead and share this data, and once that is done, the loan provider and only the loan provider will have access to this data.

The system is secure as the user must give their consent to the aggregator to access their data and the data will only be available for viewing for a specified period of time, following which the data will be deleted giving the lender only a specific window within which to access the information. It will also be illegal for the aggregators to re-sell this data or use it to form financial profiles of the users. The data will be encrypted to prevent leakage. Only the recipient will be able to decrypt the data and as a result, no one else will be able to view it.

State Bank of India, ICICI Bank, Axis Bank, IDFC First Bank, Kotak Mahindra Bank, HDFC Bank, IndusInd Bank, and Federal Bank are the 8 banks to have joined the network. NBFCs that have received operational licenses are Finvu, OneMoney, CAMS Finserv, and NESL, while PhonePe, Perfios, and Yodlee are expected to join soon as well

For feedback, write to pavan@bclindia.in

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