Account Aggregators: The Last Piece in India's FinTech Puzzle
The final fin-tech revolution that can completely transform India's financial landscape.
"Don’t put your eggs in one basket" is an age-old investment advice.
But once we put them in different baskets, ranging from banks to demat accounts and insurances, tracking them becomes a tiresome job.
If you want to sign up for a new loan or engage a service provider for handling your finances, you have to pull all the information out again and again.
Aah. If only there were an automated process for pulling them all together, no?
Well, what if we tell you that your wish has been granted? And, it does not just help you alone. It has far-reaching benefits for the entire nation!
Read on.
Financial data is coming under one roof with a new class of Non-Banking Financial Companies (NBFCs) called the Account Aggregators.
The Account Aggregators won’t have access to your data. They just act as intermediaries who share your data with appropriate users, with your consent. Currently, there are 4 Account Aggregators in India with an operating license: CAMSFinServ, Cookiejar Technologies Private Limited, FinSec AA Solutions Private Limited, and NESL Asset Data Limited.
But, the question is, what big changes can the Account Aggregator create in the ecosystem?
In the traditional loan application process, there are a lot of steps. And at each step, there are large drop-offs.
But, Accounting Aggregators can shorten this journey and improve the user experience. With the reduced hassle of documentation, consumers will have more choices and take faster decisions while availing financial services.
This will increase the “volume” of sales of financial products.
But, it doesn’t end here. A combination of Public Credit Registry (PCR) and Account Aggregators can work wonders.
What’s PCR?
Public Credit Register (PCR), as the name suggests, is a virtual register where all information about a person taking money on credit (loan) will be stored. It has the potential of changing the credit landscape of India which is grappling with many problems.
You see, currently, there is no single source of credible information for the banks to get a complete picture of the borrower. The major focus is on large and registered borrowers (like big companies). Now, MSMEs contribute around 29.7% of GDP and 49.66% of Indian exports. Collectively not so small, right? But as per The World Bank, the current credit gap for MSMEs in India is at $380 billion (Rs.28,50,000 crores).
As a result, there is a huge dependency on the self-disclosures of information by borrowers, which is unreliable and incomplete. Due to this information gap, lenders assume every borrower is at average risk and their automatic response is to increase the rate of interest.
You see the problem here? Because of inadequate information, the loans are not provided to the right people at the ‘right rate’ at the ‘right time’. The credit market fails.
PCR aims to solve all of this by providing a complete view of the borrower’s profile.
(Check our full cover on PCR here. Highly recommended :))
Synergies of PCR and Account Aggregator
They together complete the puzzle.
While PCR provides the liability (borrowings and payables) side of the information, the Account Aggregator provides the asset (such as investments) and other cash-flow-related information. Together, they can give financial institutions better visibility of the financial health of an individual or a business.
Now they can deploy machine learning and data analytics to provide personalised products, along with a smooth experience to the customers.
Account Aggregator is the final piece in the India Stack that includes layers from Aadhar to UPI to DigiLocker and e-sign (You can read about India Stack in detail over here). UPI is already one of the most advanced payment solutions in the world. Now with this final layer, India’s fintech ecosystem is set to take on the world.
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