27 Jan Account aggregator Network & the Credit Gap in India : Lets Understand
Account aggregator Network & the Credit Gap in India- Today Current Affairs
There is always a need for a developing country like India to fill the credit gap. Credit gap simply can be defined as, that businesses are unable to get the desired level of debt/loans/advances/credit/funds.
Many economic entities/Individuals could be having fund surplus and some could be having fund deficit. The credit gap for the fund deficit entity can be filled by intermediating it with the fund surplus entity.
At present the intermediation is done by banks and other Financial Institutions. The intermediation and thus filling the credit gap is having its limitation because of the fact that all fund surplus entities/businesses and all fund deficit entities/ businesses are not attached with the banking and financial system.
Hence what if there is an open online platform where the fund deficit entity can meet the fund surplus organizations. This is the concept of open banking which can empower millions of customers.
The Account Aggregator Network is a first step towards open banking in India.
On this network the customers/ businesses will share their financial data across institutions in a secure and efficient manner, which could be further accessed by others. The Hindu Analysis.
The entities which are sharing their financial data are termed as Financial Information Providers (FIPs). These can be typically the banks, mutual funds, pension funds, and some NBFCs that represent the source of personal or business data.
The Institutions which are sharing their data are termed as Account Aggregators (AA). Accounts aggregators required to take consent from the financial information providers that their provided data could be shared with customers.
The customers who seek Data information from the accounts aggregators are termed as Financial Information Users (FIUs). Banks, Lending Agencies and NBFCs can be FIUs. The Hindu Analysis.
Thus Account Aggregators are in between the Financial Information Users and Financial Information Providers.
The Account Aggregators are a new class of NBFCs, came into being through an inter-regulatory decision by several regulatory bodies: the RBI, Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDAI), Pension Fund Regulatory and Development Authority (PFRDA) through Financial Stability and Development Council (FSDC).
They (AA) need to get approval from the Reserve Bank of India.
The working of this intermediating system is fairly simple. There could be a network of account aggregators. An account aggregator develops an app. The users (public/entity/business) subscribe to the app, link with their FIPs and share the data with their linked FIP. The data is shared by FIP with an FIU. Presently only bank accounts can be linked. Later on mutual fund data ,GST data extra are also expected to be included in the same.
The process of credit Risk assessment can be made simpler and easier for FIUs by Account Aggregator. The Hindu Analysis.
The account aggregator framework is poised to benefit individual and small business users in many ways. For example the under Consolidated Dashboard users can get an aggregate view of all his bank accounts in one place at a click of button. This can be his personal financial management usage. The users can have all the banking documents at one place.
Under Single Digit Framework, the account aggregators enable the user to share data with FIPs by consolidating his own data in one place and by providing a single digital framework to share it in real time.
Under Controlled Data Sharing System data will be shared only on users consent. Consents given could be revocable.
The Consent framework will be very simple, as the user will be knowing, with whom the data is shared and for what purpose.
In terms of Data security the user can breathe easy as the data shared is encrypted and only decrypted at the receiver’s end. The FIUs will have to strictly adhere with Data Governance guidelines that are currently being framed to prevent misuse of data. The Hindu Analysis.
As the System is recently introduced, the number of users are limited, but as more users come into the account aggregator ecosystem, it will be a huge advantage for businesses, especially small businesses, in increasing their competitiveness.
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Md Layeeque Azam, Economics Faculty