The account aggregators (AA) ecosystem is seeing increased adoption from various financial services players, and lenders including banks and non-banking finance companies (NBFCs) have disbursed Rs 6,000 crore of loans through AA-based underwriting, according to a report published on May 25 by Kotak Institutional Equities.
“Industry participants have started realising benefits of the framework (AA) with implementation of use cases across several retail product segments and remain optimistic about it gaining further traction over the next few years,” the report said.
Some banks and NBFCs have implemented AA-based processes for several retail product segments and are positive about the mechanism as it leads to a better customer experience and faster turnaround time for loans, reduction in drop-off rates, lower instances of frauds, lower costs and more comprehensive borrower data for underwriting loans, the report said.
“Our business loan journey has seen an improvement across the board – the process has become much more convenient for our customers. Today close to 15%-20% of our customers are using this flow,” said Mehekka Oberoi, strategy lead, CEO’s office at IIFL.
Account Aggregator is a type of RBI-regulated entity that helps individuals securely and digitally access and share information from one financial institution they have an account with, to any other regulated financial institution in the AA network. User data cannot be shared without the consent of the individual. AA is different from Aadhar EKYCs and credit bureaus like CIBIL as the AA network allows sharing of transaction data or bank statements from savings deposits and current accounts.
Over the past year, most of the large private and state-owned banks have been onboarded onto the AA ecosystem as financial information providers (FIPs). Similarly, mutual fund agents as well as several insurance companies have also been onboarded as FIPs. The ecosystem expects the onboarding of the GST network over the next few months as another FIP, which should drive further use cases for underwriting credit to self-employed borrowers and small businesses, the report said.
“We view the developments in the AA ecosystem as a definite positive for credit growth and asset quality for banks in the long term,” the brokerage said. About 8 million accounts have already been linked to the AAs so far since September 2021 while 10 million consent requests have also been raised through AA applications.
However, the AA ecosystem is also dealing with its own teething challenges, the report said, such as systemic outages at the FIP or AA level, systemic constraints at some of the large FIPs, consent provision mechanisms for joint accounts, among others. However, this has not been a deterrent in driving increasing adoption of the AA ecosystem so far, it added.