People seeking loans often end up getting one sanctioned at an unfavourable interest rate or terms and conditions. This may happen due to lack of proper credit rating due to unavailability of data from multiple credit sources or due to lack of proper compilation of date to determine the accurate credit rating.
To avoid such a situation, the role of a proper Account Aggregator framework becomes important.
“The Account Aggregator framework is one of the most promising new innovations in the BFSI (banking, financial services and insurance) ecosystem. On the bank of the NBFC-AA framework from the regulator, the AA platform finally went live a couple of weeks ago and has already been positively embraced by some of the larger banks and financial institutions in the country,” said Amit Das, CEO and Co-founder, Think360.ai.
“There are more than 15 Technical Service Providers – including Algo360, a flagship product of Think360 – riding the algorithmic and data rails of AA. At its core, there are tentatively 7 AAs, 12 AA Data Standards TSPs and 16 Data Analytics TSPs, as of now. This number will grow (more likely) or shrink as the adoption cycle for the AA framework kicks in,” he added.
Das lists the reasons why one should be bullish about what the AA framework will bring about:
1. Its core design principles are digital first, data first. It’s the first of its kind in creating a very scalable data gateway for regulated entities to get verified data.
2. It has customers at its center. The role of purpose code, duration/term of data, and an overall adherence to data privacy norms – we are bringing in a lot of learning from global markets’ experiences.
3. Many people will confuse it with open banking/ PSD2 type innovations in Europe for instance. But by dissociating the gateway from the processor/ owner/ user – the framework looks at the economic incentives very differently.
4. One of the biggest pain points in several BFSI processes is the end-to-end TAT of onboarding customers, resolving grievances etc. AA should help us bring down the TATs and hence, costs for such activities; these benefits can be passed back to the customers.
5. We also expect document and identity fraud to come down with AA, since authenticated information comes direct from the Financial Information Provider (FIP) and is sent to the Financial Information Users (FIUs).
How does good and bad credit history affect your prospects of securing a loan on favourable terms?
“The opportunities are limitless, considering that we are in the second phase of credit growth as an economy. The AA framework opens up a superior, faster and better way to approach cash-flow based lending – which is extremely important for driving MSME lending/ small business loans. Moreover, the self-employed segment may be able to get better terms and higher access to quality financing,” said Das.
Das suggests three things that institutions must do to unlock the potential of AA:
1) Build great customer experiences to drive adoption
What several fintech companies did with UPI was focusing on the exceptional UI/UX. The extreme commitment to customer experience is the reason why PhonePe, Google Pay etc. are doing significantly greater volumes on UPI than banks.
2) Educate the customers
People are scared of what they cannot control or what can come across as information risk. UPI is a transaction with a potential dispute resolution method, which can help one recover the money. Data once lost, however, can not be recovered.
3) Lastly, like all ecosystems, the demand and supply side have to converge.
All ecosystem partners must make positively reinforcing commitments towards bringing AA to their core workflows, and making data available, much as it may seem to threaten their data. Like credit bureaus, in the long term, AA will help broaden the credit landscape and deliver great value.