Account aggregators are ready to widen Indian access to credit

News: Complementing the PMJDY, India recently unveiled the account aggregator (AA) network to overcome the challenges of access to micro-credit for individuals and micro, small and medium enterprises (MSMEs)

The AA network along with Pradhan Mantri Jan Dhan Yojna (PMJDY) would help India formalize credit and boost economic growth in the post-covid era.

What is the objective of PMJDY and how it has fared? Read here: https://forumias.com/blog/7-years-of-pm-jan-dhan-yojana/

What is an Account Aggregator (AA)? Read here: https://forumias.com/blog/account-aggregators-new-framework-to-access-share-financial-data/

What are the Benefits of Account Aggregator?

First, it is a paradigm shift from physical collateral to information collateral.

Second, it will unlock access to affordable credit in a streamlined and trustworthy way.

Third, it will reduce the transaction cost and time taken to sanction loans.

Fourth, it will make lower-sized loans more feasible for banks, and empower them to provide personalized loans and more innovative financial products.

How the account aggregator (AA) network privacy protection principles are different?

Protection of user privacy is ingrained in the network. For example,

-It requires the individual’s permission to share data with an FIU.

-The consent method is designed on the principles of Data Empowerment and Protection Architecture (DEPA), a policy proposed by Niti Aayog.

-The data shared on the AA network is end-to-end encrypted. It is encrypted by the sender and can be decrypted only by the recipient.

-AAs are not allowed to store, process, and sell the customer’s data.

These design principles ensure that ownership of the data lies with individuals and is not monetized. So, no conflict of interest arises when data is shared across the AA platform.

What is the way forward?

First, there is a need to expand the adoption of the AA platform in India. All stakeholders in the AA ecosystem need to play a pivotal role in this. Only four Apps have operational AA licences. ( Finvu, OneMoney, CAMS Finserv and NADL)

Second, AAs should focus on marketing and create awareness of the services they provide.

Third, AAs should develop intuitive apps for feature phones. Because all four apps are available only on Android smartphones.

Fourth, the process to onboard other financial information providers (FIPs), like the goods and services tax network (GSTN), insurance companies, National Pension System, etc., needs to be fast-tracked. As of now, only 8 banks have joined the network.

Fifthly, any technical glitches on the platform should be quickly resolved to build trust in the AA ecosystem.

Source: This post is based on the article “Account aggregators are ready to widen Indian access to credit” published in Livemint on 17^th Jan 2022.