The Account Aggregator(AA) Framework: What You Need to Know

The Reserve Bank of India (RBI) had launched a new initiative called the Account Aggregator (AA) framework back in 2019. Now that framework is live and running in full throttle for customers to use in 2023.

The AA framework aims to make it easier and more secure for consumers to share their financial data with financial institutions.

This article will discuss the AA framework in detail and explore the potential benefits it could offer consumers.

How the AA Framework is Revolutionizing the Financial Industry

The AA framework is still in its early stages, but it has the potential to revolutionize the way consumers interact with their financial institutions. The AA framework could help consumers get better deals on financial products and services by making it easier for them to share their data. (Check out Use Cases to understand more)

As of May 2023, there are over 300 entities(Financial Information User or Financial Information Providers) that are either live or in the testing phase of the Account Aggregator (AA) framework. Additionally, a total of 8.73 million customer accounts have been registered on the AA framework.

Source — Sahamati

These figures indicate that the AA framework is gaining traction in the financial industry.

There are several reasons for the AA framework’s growing popularity.

First, the framework makes it easier and more secure for consumers to share their financial data with financial institutions. This can save consumers time and hassle, and it can also help them get better deals on financial products and services.

Second, the AA framework is backed by the Reserve Bank of India (RBI), which is India’s central bank. This gives consumers confidence that their data is safe and secure.

*This is not a comprehensive list

The Need for an Account Aggregator Framework

The Account Aggregator Framework was created to address the challenges that consumers face when trying to access their financial data.

In the past, consumers had to go through a lengthy and often frustrating process to get their financial data from one institution to another. This process often involved filling out forms, providing documentation, and waiting for approvals or at the very least collecting the statements of all the accounts for a specific period and submitting it to the concerned entity for their financial product need.

The Account Aggregator Framework streamlines this process by allowing consumers to share their financial data with authorized third-party providers with their consent.

The Account Aggregator Framework offers a number of benefits to consumers which can also be said as the pillars of this framework:

The framework consists of four parties:

• Convenience: The Account Aggregator Framework makes it easier for consumers to share their financial data with authorized third-party providers. This can save consumers time and hassle, and it can also help them get better deals on financial products and services.
• Security: The Account Aggregator Framework is designed to be secure and protect consumers’ privacy. All data shared through the framework is encrypted and only shared with authorized third-party providers.
• Transparency: The Account Aggregator Framework is transparent and consumers have control over their data. Consumers can choose which third-party providers they want to share their data with, and they can revoke access at any time.

The Account Aggregator Model

Source — Sahamati

The framework consists of four parties:

• Consumer: The consumer is the person who owns the financial data. The consumer has control over their data and can choose to share it with authorized third-party providers.
• Financial Information Provider (FIP): The FIP is a financial institution that holds the consumer’s financial data. FIPs can include banks, mutual fund houses, and insurance companies.
• Financial Information User (FIU): The FIU is a company that uses the consumer’s financial data to provide products or services. FIUs can include loan providers, insurance companies, and wealth management firms.
• Account Aggregator (AA): The AA is a neutral third-party that facilitates the sharing of financial data between consumers and FIUs.

Great

So now we understand how the model works but how does the user share the consent? How does the consumer’s user journey look like?

The User’s journey in the Account Aggregator system (Case Study : ZapMoney)

ZapMoney is a digital lending platform that uses the Account Aggregator Framework to collect financial data from users. This data is used to assess the user’s creditworthiness and determine the terms of a loan.

The user journey in the Account Aggregator system begins when the user signs up for a loan with ZapMoney. The user is then directed to the Account Aggregator website, where they are asked to create an account and provide consent for ZapMoney to access their financial data.

Once the user has provided consent, ZapMoney sends a request to the Account Aggregator for the user’s financial data. The Account Aggregator then retrieves the data from the Financial Information Providers (banks) and sends it to ZapMoney.

ZapMoney uses the financial data to assess the user’s creditworthiness and determine the terms of a loan.

This is a representative journey of the steps in the Account Aggregator journey

The steps involved in the journey are as follows:

1. The user selects Account Aggregator as the mode to share their financial data.
2. The user selects their bank name, (in the background the user’s phone number is also passed to the account aggregator)
3. The Account Aggregator asks the bank for the one account that is connected to the mobile number.
4. The user selects which bank account’s details they want to share with ZapMoney (in case they have multiple accounts with the same bank)
5. The user is shown exactly what they are giving the consent for, such as the duration of the data which is going to be fetched, how long the data will be valid, how many times the FIU will fetch the data, and for what purpose the data is being asked for.
6. The user approves the consent by submitting the OTP sent to them by their respective bank.

And done, the user journey is complete and the data is fetched by the AA from the bank to be given to ZapMoney for their underwriting purposes.

All the user has to do is select the bank or FIU from where the data will come from and approve the consent to share the data. This is extremely convenient, secure and transparent as the user knows the exact purpose of the data that is shared by them.

Naturally the question come what else can this data sharing be used for!?

What are some other Use Cases in which AA is being utilized?

Well the two main use cases for which this is being used are:

1. Loan Underwriting — Banks and NBFC request for the financial data and run their underwriting models on that data to provide loan products. This is extremely simple and anybody at anytime can onboard this system, so financial inclusion comes as a big bonus in this.
2. Wealth Management
3. Spend Analysis (Personal Use)

As AAs become more widely adopted, we can expect to see even more use cases for this technology. AAs have the potential to revolutionize the way financial services are delivered in India, and they are already starting to make a difference.

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Until Next time!

Originally published at https://productsunboxed.substack.com.