To jumpstart economic growth in the post-pandemic environment, simplifying access to business loans for SMEs is a critical first step. The truth is India still lags behind the global average when it comes to loan origination and disbursal. According to a report by TransUnion CIBIL and SIDBI, the average turnaround time for a business loan application to be approved was as high as 26 days in 2018. Compare this to the United States where the Small Business Administration (SBA) takes all of 36 hours to clear express loan applications and one realises how much ground we still have to cover.
Longer loan processing timeframes not only put lenders at a competitive disadvantage, they are also one of the top factors affecting customer satisfaction. However, this could soon be a thing of the past with the arrival of Account Aggregators (AA).
What is an Account Aggregator (AA)?
Account Aggregator is a framework designed to enable designated financial service providers to share applicant data seamlessly across the various stages of the credit decision-making process.
In 2016, the RBI began giving licenses to specialised NBFCs, known as Account Aggregators, whose sole purpose was to collect consumer financial data such as bank statements, IT returns, online shopping frequency, utility payments, etc. This data is then made available to lenders for the purpose of evaluating loan applications but only after obtaining the express consent of the borrower, in this case, an SME owner.
In other words, when an Account Aggregator receives a request for data from a lender (Financial Information User), it sources the same from entities like mutual funds, banks, insurance companies, and pension funds (Financial Information Provider) and transmits it to the lender. The data is fully authenticated by the FIP, eliminating the need for further verification at the FIUs end.
In line with the provisions of the Data Empowerment and Protection Architecture (DEPA) policy, AAs gives Indian consumers complete control over how their personal data is used and by whom and enable the large-scale transfer of consumer data over a secure, encrypted channel.
Roles and Responsibilities of Account Aggregators:
Account Aggregators are meant to facilitate the free flow of credit in the economy while giving lenders the resources to improve decision quality. It is a part of the multi-pronged strategy of the RBI to bring the spiralling NPA volumes in the financial services sector under control.
The government has approved eight companies to operate as account aggregators:
- CAMS Finserv
- Cookiejar Technologies (Finvu)
- National E-Governance Services Asset Data
- Perfios Account Aggregation Services
- FinSec AA Solutions Pvt Ltd (OneMoney)
- Yodlee Finsoft
- Jio Information Solutions
- Aditya Birla Trustee Company.
Here are some of the key roles and responsibilities of Account Aggregators:
The primary function is collecting and collating customer data from multiple sources such as banks, telecom companies, and healthcare providers, lowering the cost and time taken by banks and NBFCs for loan origination.
Account Aggregators are not authorised to store or otherwise use the data to prevent the possibility of theft or manipulation. In other words, Account Aggregators only serve as conduits for the data to pass through from the source to the requesting agency and vice versa.
Account Aggregators are liable to only share data with the express permission of the applicant/borrower.
Seamless data sharing in real-time:
Account Aggregators are expected to multiply the efficiency and accuracy of credit scoring across a wide range of financial services including lending, wealth management, personal finance apps, robo-advisory services, account reconciliation and more.
The various financial regulators such as the Securities and Exchange Board of India (SEBI), Pension Fund Regulatory and Development Authority (PFRDA), and the Insurance Regulatory and Development Authority (IRDA) have instituted a mechanism for cross-channel data sharing between the entities governed by them.
The result: Assured regulatory compliance, better resource utilisation, and lower overheads.
Faster turnaround for consumer loan applications:
Loan applicants will no longer need to spend hours collecting and submitting their financial documents – often in-person – to lenders. Error-prone back-office practices such as screen scraping will make way for secure, high-speed consumer data that is delivered directly to the lenders via Account Aggregators. This will also make it easier for lenders to monitor their loan portfolios throughout the customer lifecycle. From the loss mitigation point of view, this will be a significant step-up from the traditional manual credit assessment process. It is a win-win for customers too as they will be able to get customised quotes from multiple lenders.
Enhanced flow of working capital:
The SME sector is particularly stressed in the aftermath of COVID-19. The lack of a coherent credit history has counted against them in terms of getting access to business financing. AAs will help lenders predict risks better and reduce their exposure to bad debt.
Most importantly, it will enable lenders to support borrowers in rural and semi-urban areas that are vulnerable to exploitation by traditional money lenders.
Improved customer experience for HNW investors:
High Net Worth (HNW) clients expect regular inputs on their portfolios from their wealth managers. This requires them to interact more frequently with their advisors if only to share the details regarding their investments. Thanks to AAs, wealth managers can proactively share performance insights once they have obtained on-going approval from their clients to access their data.
Users of financial services apps may be discouraged by the prospect of having to share their bank account login credentials to get access to in-app spend reports and analytics. AAs are the ideal solution to this conundrum, giving customers the ability to choose on a case-by-case basis when to share their sensitive financial data.
Robo-advisor services are set to give a whole new dimension to personal finance management. Research suggests that millennials value the freedom to make their own financial decisions. With the integration of data from AAs, robo-advisors will be able to deliver value-added advice to customers across the entire range of investments.
Reconciliation of Accounts use case:
Most SMEs cannot afford to hire a full-time accountant to manage their books of accounts. Thanks to accounting software like Zoho Invoice and Freshbooks, they can now view consolidated bank statements and financial reports in real-time with minimal manual input. With AAs, the task of standardising balance sheets and profit and loss data for loan application purposes will be simplified, saving valuable time for SME owners.
Finezza is proud to be a partner of choice for AAs in their quest to synergise the various elements of the Indian lending industry and give customers a wider variety of financial products and services to choose from.
FIP/FIU modules require that banks, NBFCs, and all other lending institutions connect their existing technology solutions to the Account Aggregators to incorporate the basic purposes and framework of AAs. In such a scenario, Finezza and our multifaceted credit and wealth management platforms help expedite the development and certification of FIP/FIU modules for speedy onboarding of the lending institution to the AA ecosystem.
Finezza’s open API architecture is designed to provide plug-and-play functionality across the entire range of consumer and business finance verticals. To know more about our tools and platforms, get in touch with us today!