Account Aggregator System:

• Complementing the PM Jan DhanYojana (PMJDY), India recently unveiled the account aggregator network to overcome the challenges of access to micro-credit for individuals and MSMEs.
• An Account Aggregator is a non-banking financial company engaged in the business of providing, under a contract, the service of retrieving or collecting financial information pertaining to its customer.
• It is also engaged in consolidating, organising and presenting such information to the customer or any other financial information user as may be specified by the bank.
• The AA framework was created through an inter-regulatory decision by RBI and other regulators including Securities and Exchange Board of India, Insurance Regulatory and Development Authority, and Pension Fund Regulatory and Development Authority (PFRDA) through and initiative of the Financial Stability and Development Council (FSDC).
• The licence for AAs is issued by the RBI and no entity other than a company can undertake the business of an Account Aggregator.
• The AA framework allows customers to avail various financial services from a host of providers on a single portal based on a consent method, under which the consumers can choose what financial data to share and with which entity.
• It reduces the need for individuals to wait in long bank queues, use Internet banking portals, share their passwords, or seek out physical notarisation to access and share their financial documents. Thus it is a financial utility for secure flow of data controlled by the individual.
• It will help banks reduce transaction costs, which will enable banks to offer lower ticket size loans and more tailored products and services to customers. It will also help banks reduce frauds and comply with upcoming privacy laws.
• It has a three-tier structure: Account Aggregator, FIP (Financial Information Provider) and FIU (Financial Information User).
• An FIP is the data fiduciary, which holds customers’ data. It can be a bank, NBFC, mutual fund, insurance repository or pension fund repository. An FIU consumes the data from an FIP to provide various services to the consumer. An FIU is a lending bank that wants access to the borrower’s data to determine if the borrower qualifies for a loan. Banks play a dual role – as an FIP and as an FIU.

Source: EPIC March 2022