Bringing data together to transform the lending experience
It’s safe to assume that a large number of Indians have a minimum of two bank accounts. One, the account activated on reaching legal age. Two, the ‘first job’ salary account. Apart from this, many may choose to open a separate account to invest from, and another specifically for a loan or recurring expenses. The possibilities are endless, considering there is no official cap on this number.
But when it comes to decision making that requires financial data (for e.g, a loan application), multiple accounts and transactions equal multiple data sources, which can be hard to assess securely and holistically.
It would involve sharing individual bank statements with a third-party platform through screen scraping of netbanking or uploading individual PDFs. Both methods are prone to data leaks and don’t allow for real-time monitoring of customer bank accounts.
Bringing diverse data sets together
Data plays a key role in improving access to low-cost, customizable financial products and thereby driving financial inclusion. The smooth sharing of information between the Financial Information Provider, or FIP, (IT department, banks, Asset Management Companies) and the Financial Information User, or FIU, (the lender), is an essential part of this process.
That’s where the Account Aggregator comes in. Account Aggregators are an RBI-approved Non-Banking Financial Institution that works as a technology intermediary between the FIP and FIU. Banks create an API for every product they offer — from deposits to credit cards — and these APIs connect with Account Aggregators to send information as FIPs and receive information as FIUs.
Data is shared with the FIU with complete and transparent consent from the user, who has the ability to revoke this consent at any point. Amid continuing concerns around data privacy in the digital age, Account Aggregators ensure the security of any data collected and shared.
Expanding access to credit
In 2019, the Government announced its ambitious vision of making India a $5 Tn economy by 2025. However, lending to both businesses and individuals must scale rapidly for that vision to become a reality.
Account Aggregators play a critical role in expanding access to credit for new-to-credit customers and enterprises. MSMEs in particular have limited access to formal credit, considering almost 85% of the businesses are unregistered. This lack of formal data and credit history would otherwise exclude them from the formal banking system. But with the help of Account Aggegators, these small businesses can share alternative data with lenders who can underwrite them based on cash flows, online spending behavior, tax returns and more.
By minimizing the need for paperwork and separate submissions, Account Aggregators enable quicker, more efficient data sharing. This allows lenders to assess borrowers and process loan applications faster with no compromise on data security or quality. What’s more, continuing data sharing with lenders may also work to make them more comfortable with lending to new-to-credit customers.
Enabling a new paradigm of financial transactions
The Account Aggregator framework, when combined with Embedded Finance, will do for lending what UPI did for payments — enabling instant, in-context, and small ticket-size credit. Embedded Finance providers who leverage Account Aggregators will underwrite borrowers faster and better with a unified view of their financials.Together, these technological advancements will go beyond simply improving the lending experience. They will work to bring credit to those who need it most — the first time borrowers outside of urban India, the first-generation entrepreneur, and your local neighborhood kirana store.
Download our E-book for a crash course on Embedded Finance and how your business can leverage it to improve user experience, drive repeat orders, and boost Average Order Value.
