BQ Explains: How ‘Sahamati’ Hopes To Make Your Financial Transactions Simpler
Applying for a loan? Opening a new bank account? Buying insurance or investing in a mutual fund? Chances are that most of these financial transactions will still involve a fair amount of paperwork. Documents to be provided, forms to be signed etc. etc....
‘Sahamati’, a non-profit organisation backed by Nandan Nilekani, is hoping that, over time, most of those transactions can go paperless as a new category of entities known as ‘account aggregators’ take hold.
Account aggregators, registered as non-banking finance companies, will enable financial data sharing from ‘Financial Information Providers’ with ‘Financial Information Users’, with due customer consent. Six such entities have been given in-principle approval by the Reserve Bank of India, but are yet to launch.
Ahead of these entities going live, ‘Sahamati’, which was launched last week, will work to popularise the use of these account aggregators.
What Is Sahamati?
Sahamati will function as a a non-profit organisation, promoted by financial information providers such as banks, users of this information and account aggregators themselves.
The entity will be controlled by a board with representatives from these organisations. BG Mahesh, a well-know tech entrepreneur, has been appointed to head Sahamati.
Sahamati’s first point of business will be to ensure that financial information providers sign up with account aggregators. To do this, Sahamati will be holding roadshows, said Mahesh, explaining that joining the account aggregator network is voluntary.
Financial information providers can sign up with any one of the six authorised account aggregators. These include NSEL Asset Data Ltd., CAMS Finserve Financial Services Ltd., Cookiejar Technologies Pvt Ltd., Finsec AA Solutions Pvt Ltd., Yodlee Finsoft Pvt. Ltd. and Jio Information Solutions Ltd.
So far, State Bank of India, Axis Bank Ltd., ICICI Bank Ltd., Kotak Mahindra Bank Ltd. and IDFC First Bank Ltd. have signed up for this framework. Sahamati hopes to expand this network to ensure account aggregators make a real difference to the financial system.
Sahamati And Account Aggregators
The underlying model that Sahamati is attempting to push is that of account aggregators. As such, it is important to understand what account aggregators do.
Let’s say you are seeking a loan from a bank. Once you submit your request, the bank will seek your financial information, including bank account data, salary information, any previous loans and repayment history.
The account aggregator, which you have signed up with, will allow you to access all of your financial data through one application. Once you have selected the data you want to share, the account aggregator will seek your consent for sharing it with the bank which is providing the loan or any other financial service provider.
How It Helps Consumers And Financial Services Firms
For consumers, the account aggregators can help make a number of financial transactions paperless and reduce the turnaround time.
A simple authorisation to the account aggregator to share information from, say, your bank accounts with an asset management company, can help complete a transaction such as a mutual fund investment. Similarly, you may be able to process a loan within minutes if you authorise your account aggregator to share information, such as your bank account statements, with the entity you are seeking a loan from.
Customers also have the power to choose the extent to which their data can be shared. So if a customer has five bank accounts, they can choose to give access to data from only three. They can also choose the period of data that needs to be shared with the service provider.
The Financial Information User can assess the data and proceed to approve or deny the service a customer seeks. The use of account aggregators will mean shorter turn-around times for financial service providers. More importantly, it will reduce the risk of false documents and information being provided to them.
What Experts Are Saying
According to PK Gupta, managing director at State Bank of India, the account aggregator framework will bring in some much-needed discipline in the credit market.
“At this point in time some lenders have to resort to data scraping to get a full picture of a customer’s financial standing. This is not a desirable system when we are talking about data privacy. The account aggregator framework will bring in some discipline in the system and will also allow banks and other financial services companies to have access to better quality data,” Gupta said.
For the customers, the benefit is that there will be better terms for financial services products like loans, he added.
Vivek Belgavi, partner, fintech leader at PriceWaterhouseCoopers, says that the account aggregator framework is the next step toward data democratisation. The framework will also allow banks and other financial services providers to improve on their wealth management business.
“It allows customers the power of consent. There could be some some possible headwinds in adoption, like perceived risk of having all your information in one place or what is the added benefit a customer is getting by doing so?,” Belgavi said.
Nilekani, who launched Sahamati in the presence of bankers, regulators and fintech professionals, said the idea is to empower individuals with their own data.