How account aggregators are reshaping the borrower-lender relationship

In the recent years, the financial sector has undergone a significant transformation, driven by the emergence of innovative technologies. One such cutting-edge development is the rise of Account Aggregators (AAs), which has fundamentally reshaped the way financial data is accessed and utilised.

Introduced by the Reserve Bank of India (RBI) in 2021, the network represents a regulated entity that empowers individuals to securely access and share their financial information across institutions within the network using a safe, digital process.

With India taking the lead in embracing these AAs, we are witnessing a crucial stride towards a more inclusive and efficient financial ecosystem.

Building trust

Account Aggregators are unlocking new possibilities for both consumers and financial institutions by creating an ecosystem where the borrower and lender operate within a relationship of trust. Traditionally, the credit assessment process has been characterised by a sense of distrust, with lenders relying on third-party entities like credit bureaus to obtain information about potential borrowers. However, they are changing this dynamic by empowering individuals to share their financial data seamlessly across various financial institutions, including banks, insurance companies, and other entities.

Serving as intermediaries, AAs streamline and simplify the process of accessing and using financial information securely. By enabling financial data sharing from Financial Information Providers (FIPs) to Financial Information Users (FIUs), they are revolutionising how we manage and share our financial data. This shift towards a more transparent and collaborative approach is essential in building trust between borrowers and lenders.

Addressing financial fraud

Account Aggregators also combat financial fraud by directly sourcing data from reputable financial institutions, removing the risk associated with forged documents. This approach ensures the accuracy and integrity of the information shared, which increases trust in the lending process. Protecting sensitive data through secure digital channels and advanced encryption lowers the risk of fraud or unauthorised access. They are building trust between borrowers and lenders by mitigating these risks, resulting in a more secure lending environment, and increased financial inclusion.

Bridging the gap in financial inclusion

Another significant impact of AA is their role in bridging the gap in financial inclusion. For individuals in remote areas or those without a formal credit history, traditional banking services may be out of reach. In such situations, AAs democratise access to financial services by utilising digital data, making it possible for more people to access loans and other services based on their financial behaviour rather than solely relying on their credit history. This inclusive approach is essential in ensuring that all individuals have equal opportunities to participate in the financial system.

Moreover, access to affordable credit is a hallmark use case of Account Aggregators, particularly for underserved segments like new-to-credit (NTC) customers and small businesses. Less than 15% of Indian MSMEs have access to formal credit, primarily due to limited or no credit history. They are bridging the gap by enabling the sharing of alternative financial data with lenders, thereby empowering these segments to access the credit they need for growth and development.

Enhancing risk assessments and operational efficiency

Account Aggregators improve risk assessment and operational efficiency for financial institutions. By providing access to comprehensive financial data, they enable lenders to conduct thorough risk assessments, resulting in more informed lending decisions. This results in higher loan approval rates and lower default risks. Furthermore, the streamlined process provided by AAs improves operational efficiency for lenders, saving them time and resources. Finally, this data-driven approach benefits both lenders and borrowers by creating a customer-centric lending environment and increasing financial stability.

Revolutionising finance with AAs

The potential of AAs extends beyond just simplifying data sharing; it’s about revolutionising finance once again. Just as UPI revolutionised digital payments with over 10 billion transactions, Account Aggregators are poised to transform finance. With AAs leading the charge, we are moving towards an ecosystem where the borrower and lender operate within a relationship of trust, laying the foundation for a more robust and sustainable financial future.

To sum up, account aggregators are driving a paradigm shift in the financial sector, transforming the way financial data is accessed, utilised, and shared. By developing trust, enhancing security, and promoting financial inclusion, they are unlocking new opportunities for individuals and institutions alike. As we continue on this journey towards a more inclusive and efficient financial ecosystem, Account Aggregators will play a central role in shaping the future of finance.

(Ankit Ratan, Co-founder & CEO at Signzy, a fintech company)