CRED wants to be an account aggregator, here’s everything you need to know about AA

CRED, one of the leading fintech start-ups, is planning to apply for an account aggregator license from the Reserve Bank of India (RBI), according to a report by the Economic Times. The application will be filed by CRED’s subsidiary, Dreamplug AA Tech Solutions, which was incorporated in January 2020, the report adds.

“Dreamplug AA has been incorporated to engage as an information technology focused account aggregator and to undertake the business of providing the service of retrieving and collecting such financial information relating to its customers,” said the CRED.

The license, if approved, is likely to benefit CRED because it can mine the data of thousands of people who use its platform to pay their credit card bills. CRED’s foray into lines of credit and P2P lending has allowed it to collect data that can be useful in identifying patterns in user behavior. An account aggregator license can help the company use all this data to design a targeted approach for its financial products.

What is an account aggregator?

The account aggregation system allows financial entities to share customer information across various financial services after obtaining user consent. AA companies are not permitted to engage in any business other than account aggregation business.A technical definition based on the RBI guidelines bed:

“Account aggregators enable structured sharing of financial data between financial information providers (FIPs) and financial information users (FIUs).”

A single person’s financial profile is spread across multiple interfaces such as bank accounts, stocks, government bonds, mutual funds, exchange-traded funds, insurance, etc., making difficult to follow all this. The system has been touted as one of the “data rails” besides the National Health Stack under the India Stack project, which includes Aadhaar, DigiLocker and others.

Consent management: AAs keep a log of consents given by users, called “consent artifacts”. They can also be referred to as consent brokers because they negotiate access to information. Customers have the ability to manage consent at any time and can choose to opt out of the program.

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Implementation of data security: The data covers 18 classes of financial information which have been defined in banking, investments, insurance and pensions in the RBI guidelines. AAs are not allowed to store data and should simply facilitate the exchange of data. The guidelines also mandate an audit of internal systems and processes at least once every two years by external auditors.

Regulatory oversight by RBI: AAs will be regulated by RBI, Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI) and Pension Fund Regulatory and Development Authority (PFRDA).

Understanding FIP and CRF: FIP is defined as any entity such as a bank, banking company, non-bank financial company, asset management company, custodian, insurance company, insurance repository, etc., which belongs to the financial sector. FIU is classified as a registered and regulated entity by any financial sector regulator such as RBI, SEBI, IRDAI, PFRDA, etc.

The AA ecosystem has been online for more than six months

The Account Aggregator (AA) ecosystem went live in September last year in a program attended by over 900 fintech players and watchers. According to Kamya Chandra, a member of iSPIRT (Indian Software Products Industry Round Table, a think tank for the Indian software products industry), the consent-based financial data sharing mechanism had eight banks that constitute 40% of Indian bank accounts. The finance minister urged banks to join the network as soon as possible.

For example, the presence of an account aggregator can facilitate the seamless transfer of funds from a fixed deposit held with a bank to a pension plan, if the user desires such a transfer.

What are some of its potential use cases?

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Ready: The AA system can be used to facilitate loan disbursement as it would create a unified source of data, eliminating the need to submit documents for every aspect of a person’s financial record. MSMEs face difficulties in obtaining credit because their financial information is scattered in various places. “Account aggregators can act as intermediaries and can consolidate data including cash flow data,” said Mr. Rajeshwar Rao, Deputy Governor of RBI at the launch event.

  • Loans based on telecom data: Talks are also underway to gain approval for telecommunications data-based loans, said Nandan Nilekani, co-founder and chairman of Infosys Technologies Limited. This would mean someone could provide information about telecom bills they paid and potentially receive a loan for it through the account aggregator ecosystem.

Use in the field of health: Health data privacy is a big concern for the NHA, CEO RS Sharma said, referring to the national digital health mission being built by the health authority. In that regard, he said the authority would consider creating “health account aggregators” for the healthcare industry, which will likely see “very, very heavy” use of a similar data-sharing mechanism.

Provide financial advice: It is possible to use the account aggregation framework to deliver accurate financial notices to customers. Previously, it was difficult to give accurate financial advice because the adviser could not access a person’s complete financial data, said Naveen Kukreja of Paisabazaar.

PhonePe got the green light from the RBI last year

Digital payments company, PhonePe, is another leading start-up that received approval in principle to operate as an Account Aggregator (AA) from the RBI last year. The company said at the time that the approval would pave the way for PhonePe to launch its own AA platform, but nothing has been announced yet.

The approval is valid for 12 months during which time PhonePe should “set up the technology platform, enter into all other legal documents necessary to be ready for operations and report on the position of compliance with the terms of Grant of Approval in Principle to the Bank” as specified by the RBI.

It can only begin operations once the central bank is satisfied with its compliance, after which a certificate of registration will be issued certifying its role as Non-Banking Finance Corporation (NBFC)– Account aggregator. Once operational, PhonePe will compete with licensed account aggregators such as CAMSFinServ, Cookiejar Technologies, FinSec AA Technologies and NSEL Asset Data.

Who else is part of the ecosystem?

The following companies are part of the AA ecosystem:

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  • State Bank of India, Federal Bank, Kotak Mahindra Bank and IDFC First Bank have been approved to become users/providers of financial information.
  • HDFC Bank, ICICI Bank, Axis Bank and IndusInd Bank already live with.
  • NBFC Finvu, OneMoney, CAMS Finserv and NESL received operational licenses to become AA.
  • Perfios and Yodlee have received approval in principle to become AA.

Sahamati, a nonprofit collective of account aggregators, identifies that the following organizations also seek to be part of the AA ecosystem as users or providers of financial information.

  • Bajaj Finserv
  • DMI Finance
  • If
  • Kairos Capital
  • lendingkart
  • NeoGrowth Credit
  • Union Bank of India

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