Customer Protection

The AA Framework provides that:

1. The customer financial information cannot be used or disclosed by the AA or the regulated financial entities except for express customer consent;
2. AA shall not request or store customer credentials;
3. There shall be adequate safeguards built in the IT systems to ensure that the AA is protected against unauthorised access, alteration, destruction, disclosure or dissemination of records and data;
4. Customers shall have the right to revoke their consent for data sharing at any given time; and
5. An Account Aggregator shall not use or access any customer information other than for performing the business of account aggregator.

Advantages of AAs

AA can assist regulated financial entities in seamless decision making required for lending, loan monitoring, wealth management, personal finance management, etc., by eliminating paper trails and facilitating greater access to financial services and credit to earlier underserved and unserved segments (such as due to socio-cultural issues ) thereby reducing information asymmetry. This will provide much needed respite to underbanked individuals or the MSME sector that has historically been dependent on collateral-based borrowing for loans as small as Rs 5 lakh and struggles to keep its balance sheet updated, braving various oddities, the latest being supply chain disruptions on account of the pandemic that put a strain on working capital requirements. The traditional lending space that these MSMEs find themselves in involves the cumbersome process of sharing physical, signed and scanned copies of customer bank information, repetitive data authentication and proof of financial records. All of these could be replaced by AAs that in turn could provide simple, secure, automated, and digital financial information sharing system.

Way Forward

As the importance of AAs will gain traction, financial institutions will have to align their technology-based platforms with each other to provide for seamless movement of financial data. Towards this end, Reserve Bank Information Technology Pvt Ltd, a wholly owned subsidiary of the RBI, in consultation with RBI has come out with a set of technical standards which are recommended so as to ensure that the design of the NBFC-AA ecosystem is data-blind; based on electronic consent; generates non-repudiable audit trails and allows for interoperability & layered innovation.

To ensure an organic flow of customer financial information among regulated financial entities, a large number of customers and financial entities will need to be on board over the NBFC-AA platforms to utilise the potential of the NBFC-AA ecosystem and it will be equally important is that the regulated financial entities tap into unique opportunity.

Possible Innovations

Since AA Framework only permits flow of customer financial information among regulated financial entities, AAs have a huge potential to partner with payment aggregators (which were not previously regulated by RBI) and prepaid-payment instrument issuers for providing quick ‘neobanking’ products. These include one-click loans, card issue, account opening, insurance products, wealth management, etc. As neobanks work exclusively in a digital only space, access to consolidated customer financial information (based on express customer consent) could be an attractive avenue for AAs and Fintech companies to upscale their operations and capture the untapped potential of AAs in bringing about financial inclusion.

With efficient use of the AA we can be optimistic of seeing a shift of power over data accessibility and usage to the owners of data rather than to holders of data, providing the customers much needed balance between data privacy and the need of quick financial solutions.

This article was originally published in The Indian Express on 4 October 2021 Co-written by: Veena Sivaramakrishnan, Partner; Zubin Mehta, Partner; Jasraj Narula, Associate. Click here for original article

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