Before disbursing loans to individuals and organisations, the first thing any banks or lenders do is to vet their financial situation and lending eligibility. Lending institutions will want to know if you’ll be able to pay back the money you borrowed (the principal) plus interest in a fair amount of time.
Then came the Account Aggregator framework – a complete system of transferring important, private, and confidential data of customers from FIPs ( Financial Information Providers) to FIUs ( Financial Information Users) safely and securely, all with explicit consent of the said customer.
AAs are touted as the protagonists who will assist lenders make safe lending decisions, carving a win-win situation for both customers and lenders. How will they do that? Let’s understand in detail.
How Account Aggregators can Lead to Safe Lending Decisions
AAs help eliminate delays, the scope of human errors, and frustrations associated with garnering multiple documents from different agencies, a cumbersome process every loan applicant had to go through earlier. Thanks to AAs, lending agencies can finally adopt a customer-first approach and improve the lending experience considerably.
1. Better Sourcing of Data
Account aggregators round up data collected from many organisations, which in itself acts as a guard against any possibilities of fraud. Moreover, the lenders can rely on this data much better since it has probably passed several parameters already before being factored in. For example, let’s say a loan applicant’s income tax filings tell a different story altogether when compared with his bank statements, pointing to a classic case of documents being forged or tampered with.
The lending agencies get to profile customers according to the risks involved much better and eliminate bad borrowers much early on in the lending pipeline. This translates positively into the overall health of the loan book, better profitability, and increased customer satisfaction.
2. Granular Data Processing
When a potential borrower uploads important financial documents onto the lender’s website to apply for a loan, there is a good possibility of errors or frauds taking place. Unfortunately, even with a screen scraping tool in business, it is nearly impossible to pinpoint data manipulations or determine if any critical data is tampered with.
This forces lending agencies to enlist the help of human agents to verify minute details and filter out instances of fraud, which ultimately leads to an increase in loan turnaround time and an abrupt end to customer association.
Account aggregators are solving this issue head-on with the help of APIs, acting as the intermediaries and safe carriers of data from FIPs to FIUs. By doing away with age-old practices such as notarization of documents, error-prone certification, and consumer handling of physical data, lending agencies are in a better place to make safe lending decisions and safeguard their processes, all thanks to AAs.
3. Assess MSME Risks Better
MSMEs in India required better and more formal avenues of finance as they typically had to rely on informal means of acquiring credit since the organised sector such as banks and NBFCs found lending to MSMEs quite risky.
One of the other fundamental problems banks encounters while lending to MSMEs is their inability to furnish systematic data. According to a 2019 report by PwC, only 10% of the 6.33 crores MSMEs in India had access to formal credit.
Under the AA framework, with more democratisation and a richer set of data available to lending agencies, MSMEs finally have the scope to avail viable credit access from the big players in the market. Also, banks and NBFCs feel more confident in dealing with MSMEs and even offering loans of small-ticket size because of AA intervention.
Benefits of Account Aggregator System
The AAs have the potential to transform the fintech landscape within India, thanks to its unique and essential offerings, which can help lending agencies make safe lending decisions. Here are a few other benefits associated with AAs that will only add more value to the whole credit proposition of lending organisations:
1. Standardised Information
The fintech space in India is enormous and growing every minute, with a chunk of players working in tandem to meet the needs of the ever-growing economy. However, the different banks, NBFCs, other lending agencies, insurance agents, mutual fund houses and other fintech companies have different sets of data stored for the same customers, all in various formats from one another.
This wide range of data creates an opportunity for confusion and requires standardisation to allow faster decision-making. Account aggregators have standardised this financial information to a great extent and helped create better underwriting algorithms, thus allowing lenders to monitor data in a streamlined manner.
2. Integrated Systems
The different banks and lending institutions will find it easier to integrate their financial architecture to better their existing lending practices. For example, transaction-based lending could be the new norm across all lending institutions, allowing banks to obtain any customer’s financial information without hassles or delays.
3. Increased Customer Satisfaction
The AAA framework proposes some solid data privacy and security policies. All the organisations partnering or adopting the AA system have to incorporate these policies to maintain the sanctity of customer data being shared across the institutions.
This will only increase customers’ trust in the lending framework and build a strong banking relationship. In addition, standardised and secure practices such as data encryption at source, user-explicit content and data masking are incorporated into the AA system, increasing customer faith and satisfaction in the whole lending space.
Account aggregators can prove to be a game-changer in India’s financial and lending landscape, which will help consolidate important information across several parameters, helping banks with democratised data that is easy to process, leading to safer and better lending decisions.
Finezza’s state of art loan origination, loan management, and collection delinquency management software helps banks, NBFCs, and other lenders process KYC documents faster, manage and track credit applications, assess lending risks, and streamline the entire lending process seamlessly. For more information on how your institution can benefit from Finezza’s services, contact today.