Indian Banks Gear Up To Launch Account Aggregators
A clutch of Indian banks will launch account aggregators over the next month or so, as they seek to use a newly introduced class of entities which will hold customer data centrally and allow for easier access to financial services.
At least three banks will launch their account aggregator services in September after having spent a year experimenting with data sharing technologies, said multiple people aware of the development. The first phase of the launch of AA services by these banks will be restricted to opening of current and savings accounts, which will be followed by opening recurring and term deposits, these people said.
The early movers in launching account aggregators are likely to be private banks, they said.
“In September, three major banks and two AAs are expected to go live post certification. These entities have been testing in a closed user group environment until now,” said BG Mahesh, co-founder and chief executive officer of Sahamati, a collective working to popularise the AA ecosystem.
He declined to specify which banks will be launching the services.
Rolling Out Account Aggregators
Account aggregators are a set of non-banking financial companies, which work as technology intermediaries between companies seeking financial data of customers (financial information users) and those holding that data (financial information providers).
FIPs and FIUs include banks, non-bank lenders, insurance companies and mutual funds, who require financial information and documents from customers.
According to Krishna Prasad, founder and chief executive officer at FinSec AA Solutions Pvt. Ltd., the early experience with rolling out account aggregator services has been smooth. FinSec’s AA service has been branded as OneMoney.
For each product that a bank offers, such as different types of deposits to credit cards and wealth products, the bank creates an API, Prasad said. These APIs connects with the middleware of the AAs to send information as FIPs and receive information as FIUs, he added.
An API acts as an interface for interactions between two software programs. A middleware acts as a bridge between an operating system and the applications running on it.
“Our learning while implementing the AA solution over the past few months is that most large banks have robust API gateways, which makes it easier for us to build on top of. However, for smaller banks, that have not yet gone down the digital journey, we are thinking of alternate solutions that make integration is easy,” said Srikanth Rajagopalan, CEO at Perfios Account Aggregation Services.
Rajagopalan said he expects to see at least 50 banks sending and receiving data via account aggregators by the end of the current financial year.
Kotak Mahindra Bank, which is implementing the account aggregator system, also did not require any material reconfiguration internally, said Deepak Sharma, president and chief digital officer at Kotak Mahindra Bank. “We shall plan commercial roll out in the coming months. This may take time because we need to see how the network shapes up, how other banks and institutions come on board for the system to attain critical mass,” he said.
Banks Eager To Increase Adoption
The account aggregator system hopes to ease data sharing between various financial services players.
With a customer’s consent, the aggregator can digitally grab documents from your bank (FIP) and share it with another financial service provider (FIU). This, in turn, would mean that customers don’t need to run around collecting documents to open accounts, get loans or access other financial products.
Banks will also benefit from AAs.
“Lenders see drop outs in the loan application process when it involves physical paperwork or even when it is a digital loan journey where the financial documents have to be uploaded,” said Munish Bhatia, co-founder, Cookiejar Technologies Pvt. Ltd., which plans to launch an AA service called Finvu next month. By sharing the information digitally, in a secure environment, we would see real value coming in as adoption grows, he said.
According to Sameer Shetty, head of digital banking at Axis Bank, lenders have worked with the AAs to figure out integration among themselves over the last year. This could help customers and lenders once volumes begin to increase.
“AA is an important initiative which will empower the customer to view and share their financial data across banks and other participating players. Axis will be one of the early adopters once this ecosystem goes live. We are in the testing phase with our AA systems and are working on multiple use-cases, specially in the areas of loans and liabilities,” he said.
Banks will first offer deposit services using AAs, followed by lending products. It could take at least 12 to 24 months for mutual funds and insurers to come on board, a senior executive with one of the AA providers said, speaking on condition of anonymity.
Privacy and Data Protection
The platform and design of AAs ensures complete data blindness and customers are assured of total protection of their data, said NR Sudarshan, vice president-operations at CAMS FinServ.
“The AA service design is in sharp contrast to the current mechanism of sharing one’s financial asset related details through physical paper mode, which has a very high possibility of pilferage and misuse when it gets into the hands of unintended and unauthorized users,” he said.
The AA system is based on a consent mechanism which ensures that data is shared only when it is requested by a specific FIU for a specific purpose and for a specified time period.
“As long as FIPs and FIUs are regulated entities, like banks, mutual funds or insurers, who have sufficient controls on data storage and usage, the risk of data misuse is reduced. But if, at any stage, anyone who is not a regulated entity, has access to the AA system, there is greater uncertainty on how the data will be used,” said Sharma of Kotak