Unveiling the AA Framework: A Personal Journey into Fintech Infrastructure
[This article has been written by Aryan Mulchandani - Founder’s Office @Dexter Ventures]
In my journey through the world of fintech, I’ve encountered a fascinating piece of the puzzle — the Account Aggregator (AA) framework. It’s a game-changer, and I can’t wait to share its potential with you.
Within the AA ecosystem, we come across two key players: Financial Information Users (FIUs) and Financial Information Providers (FIPs). These players act as the gatekeepers of financial data. Imagine walking into a store, like Bajaj Finance, seeking a loan. They want to assess your income accurately. This is where the AA framework comes into play. Bajaj can request your salary credit information from your bank, such as Kotak, using passbook entries. This empowers Bajaj to make more informed lending decisions.
The AA landscape, however, is not without its intricacies. In this ecosystem, FIUs and FIPs wear multiple hats. Technical Service Providers (TSPs), like Setu, provide the essential software infrastructure that makes this data exchange possible. One of the questions that arises is how to monetize this ecosystem and why one FIU would be willing to share data with another, and vice versa.
This ecosystem is evolving rapidly. In fact, SBI became part of the AA framework just last year alongside 11 other PSBs. It highlights how dynamic and transformative this space is becoming. Even players that might not initially seem like a fit, such as Zerodha, have the potential to become FIUs and FIPs, showcasing the inclusivity of the framework.
Mutual funds (RTAs) like CAMS also find their place within the AA framework. Although they don’t share KYC data, they leverage it for consent purposes.
The true power of the AA framework becomes evident in collections. To effectively collect on loans, distinguishing between the inability to pay and the unwillingness to pay is crucial. AA provides invaluable insights for collection efforts. Its real value shines when used at scale, saving costs compared to manual processes.
Imagine a world where the AA framework is widely adopted. This could lead to significant monthly loan disbursements. However, it’s not without challenges, as physical documents can carry the risk of manipulation.
For players like Zerodha, the relevance of AA may not be immediately apparent. However, use cases such as secured loans against securities make their involvement in the AA framework essential. The challenge lies in the ongoing evolution of the AA framework to meet the diverse needs of various players comprehensively.
Insurance, on the other hand, presents a unique challenge. Underwriting in the insurance industry primarily relies on health and mortality data, rather than financials. Consequently, insurance companies may not yet have a strong incentive to join the AA framework.
In conclusion, the AA framework holds immense potential, especially for lending and financial services providers. As it continues to evolve and gain traction, it has the potential to reshape the landscape of fintech infrastructure. I’m excited about this journey, and I’m eager to see how the AA framework shapes the future of financial technology.
#Fintech #AccountAggregator #Innovation #FinancialServices #TechEvolution
