Open banking puts banks on notice-Digitise or perish

News– India has unveiled Account aggregator framework in september,2021 that can that could revolutionize investing and credit, giving millions of consumers greater access and control over their financial records and expanding the potential pool of customers for lenders and fintech companies. 

What is Account Aggregator (AA) framework? 

An AA is a new class of NBFC approved by the Reserve Bank of India (RBI) to manage consent for financial data sharing of users. It will allow lenders to conduct an easy and speedy assessment of the creditworthiness of the borrower. 

What advantages does account aggregator offer?  

1)Account aggregators can further ease credit processes-Digital access to data from credit bureaus, know your customer norms, and GST has significantly reduced the credit processing time for small business and consumers. But there is still some information like bank statements for which banks resort to hard copies. With the introduction of account aggregators, this data can be assessed digitally, which would further improve the Indian lending landscape. 

2) Opportunities for new lenders -All incumbent banks have lots of account related and behavioural data related to their customers which only few of them put to optimum use. Account aggregators framework ensures that such an asset is made available to new age lender which can put it to an optimum use and their digital capabilities will not be constrained due to their limited consumer base. 

What is open banking? 

Financial experts say opening the network to all customers, as has now been done, is the first step towards bringing open banking in India. Under open banking, banks allow access and control of customers personal and financial data to third-party service providers, which are typically tech startups and online financial service vendors. 

 How Banks can take benefit of this new opportunity(AA)? 

1)Banks should start building up their data analysis capacity and act by reaching out to customers with appropriate offerings.  

2)They should identify consumers who are dissatisfied with their services and try to earn their loyalty 

3) Banks should see their data holistically-Banks have customer data from websites ,branch visits, call centres, mobile apps. This data if properly captured and analyzed can tremendously benefit banks and provide them with a sustainable source of competitive advantage. 

4) Data privacy law – All countries that have enacted OB have data privacy laws, India also needs to enact one soon. This would provide customers confidence and also facilitate investment by various players in customer protection data system. Also, government needs to legally enable data sharing to the extent needed. 

Conclusion-Proper utilization of Account aggregator framework will help to harness the potential of Open banking. This has potential to give a fillip to credit processing and help us achieve our goals of financial inclusion. 

Source– This post is based on the article “Open banking puts banks on notice-Digitise or perish” published in Livemint on 9 th Dec 2021.