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Account Aggregators – Digitizing Transactions

What is an Account Aggregator?


Account Aggregator (AA) is a compilation of all the Financial data from bank accounts, credit cards, any investment accounts and other accounts in one place. Currently, the same can be pulled out through the help of an API, etc.


AA will help consumers to share all financial data including information on pension, brokerage, tax, insurance, etc. Currently, it is restricted to the financial sector only, however, this model will eventually help consumers sharing data in sectors like healthcare, telecom, etc. 


Difference between the AA and Traditional process


AA is different from the earlier process of Aadhaar data sharing and other CKYC platforms. Through AA, sharing of information like bank statements (Savings, Deposits, CA) or transactions data is available. However, in earlier methods like CYKC and Aadhaar, the financial institutions only get access to the ID of the customer (address, name, gender, etc).


Steps involved for opening an account with AA


  1. Open account with the AA (can be an individual or business). Post which AA will link all the financial data (accounts/credit card accounts/brokerage accounts/etc)
  2. Consent provided to  AA
  3. Post consent, the AA will seek for an approval from the financial data providers to access the customer accounts
  4. Once the approval is in place, the AA provides the data to the customer for his/her ease of various transactions


Currently, in India we have 8 AAs: Axis Bank, HDFC Bank, ICICI Bank, IndusInd Bank, SBI, Kotak Mahindra Bank, IDFC Bank and Federal Bank.


Is AA secure? 


The data extracted via AA is encrypted and the same can be decrypted only by the recipient. Digital signatures of the individual while accessing the data provided by AA makes it secure and convenient for the user.


Commercials Involved for AA service? 

Depends on the service provider. Some may charge the end customer for providing the service.


Benefits of AAs


  1. Account management: As of today, the financial data of an individual is stored in various places. The same can be viewed in a single window by the help of an AA eventually leading to one single platform which has access to all accounts/transactions.
  2. Quicker access to loans: Getting a loan from a bank will become much simpler. An individual can give a consent to a bank and data like number of accounts, balances, statements, assets given for a previous loan, etc can be extracted through the help of an AA.


Way forward with AAs


As of today, the consumers have to go through a long process and in silos of sharing the stamped/notarised documents, signed bank statements, sharing the usernames and passwords with financial organisations to check the history (which is a 3rd party in this case). With AA coming into picture, the process becomes much simpler and a secured digital way to share your data with 3rd party in a single access after consent.

Well, this will also create new types of loan opportunities in the market.

AA will create a repository of information which will be available easily for the institutions/etc (of course after the consent).

Currently, the AA is only available for the financial sector; the same will be provided for other sectors eventually too.

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Open banking platform vector concept metaphor

OPEN BANKING- Is India ready to enter banking 2.0?

What is open banking? 


Open banking is nothing but a payment system that works on an application programming interface (API).  Let’s understand it better with the help of an example.


In India, how long does it take to open a new bank account? How many times do you need to verify your documents? If you want to apply for a loan, how much time does it take to get it approved?


I am sure you all can relate to how much effort it takes to complete each task mentioned above. If you talk about applying for a loan, let alone from a different financial organization, you need your bank account details, a good credit score, and a valid KYC document to even be approved.

With the introduction of open banking in India, everything will be possible within a few minutes and with a few clicks.


Open Banking and its status in India


Open Banking in India is still in a nascent stage and awaits a mass adoption wave. The reason behind this could be that the traditional Indian banking systems are extremely manual and system-based. Currently, even the adoption of net banking is not ubiquitous. The system focuses more on security and privacy, thereby compromising its efficiency. However, open banking has lots to offer when compared to traditional banking systems.


Is India ready for open banking? Prima facie the thought seems like a no-brainer. It is possible, as today we make payments using our phones for everything, be it an electricity bill or grocery bills, you name it! And you are doing it via phone.  A final noteworthy feature of India’s approach to open banking is that the perimeter of data subjects is broader than in most other jurisdictions.


Many open banking approaches are focused on consumer data and access to financial services. But India’s approach extends this to include small businesses also, who can be a part of this payment ecosystem and add one more layer to the data stack and have the access to improved financial services and their offerings


The progression of India with open banking principles can only be achieved through interoperability and data sharing in the financial sector. If you bring banks and non-banks together under the same infrastructure or common ecosystem, this architecture will facilitate financial inclusion, as can be seen by the increase in a high volume of low-value payment transactions, which further leads to digital transformation and development.


Open banking adoption accelerates or not?


In my opinion, the banking system has been transforming with each passing day. From an individual standing in long queues to just open an account in one tap, we have evolved. Whether it is physical banking or digital banking, individuals choose convenience and variety. 


There are many successful open banking stories. M-Pesa in Kenya, Alipay in China, and Paytm in India- their adoption indicates that there had been a certain digital drift that led to the success of these platforms. This indicates that traditional banks should change the way they have traditionally approached customers and should adapt to the new world of open banking. Digital banking or open banking systems can give them access to innovative ways of implementing digital technologies within the system, which in the future will help them to provide personalized customer services which will help them in retaining their market share and reduce capital on research and development of services.


How secure or safe is my data?


Every new technology in the market comes with new risks and uncertainties. However, with open banking platforms, they have the potential to rewrite the relations between a bank and its customers. When we talk about a consumer, a consumer is someone who prefers convenience packaged with security and safety. So, open banking will enhance or enable the management of money more securely, more convenient, and customer-focused.


At last, I would like to conclude that with every step in the future or tomorrow something or the other is changing. Change is inevitable, and it comes with a mixed bag of offerings. Here, in the case of open banking in India, the future is going to be collaborative and interconnected.

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