Account aggregator transactions set to soar

Touted to be the United Payments Interface (UPI) of data, while the current usage penetration of AA may be a mere 0.2% of the overall AA-enabled accounts to date, the potential transfers of bank account statements through AA for varied use cases across financial sectors are estimated to reach an annual transaction volume of 1 billion by 2025 and 5 billion by 2027, according to a report by Sahamati, the industry body that promotes the AA ecosystem.

The AA ecosystem was conceived in 2016 but was officially launched in September 2021. It already has 23 banks and three life insurers as financial information providers (FIPs) on its platform and 78 entities registered as financial information users (FIUs) that are overseen by financial regulators, according to the report’s author Shalini Gupta, head of the strategy at Sahamati. In addition, there are six operational AAs and another nine in-principle AAs waiting to get their operating licence from RBI, the report added.

The AA platform facilitates the free and instant exchange of financial data between FIUs and FIPs but only with consent from customers. While a FIP could be a bank, non-banking financial company (NBFC), asset management company, depository, insurance company, insurance repository or even a pension fund, an FIU covers an entity registered with and regulated by any financial sector regulator.

“We were the first bank to join the AA framework; almost a year back, we went live. We provide and consume data too. Today, we have a large number of use cases on the lending side. This is a fully digital process with no human intervention,” said Sameer Shetty, president and head of digital business and transformation at Axis Bank. Shetty insisted that “the loan approval takes just a few minutes, following which you are required to do a video KYC. Setting up the process for EMIs takes some more time, but there is no human intervention in the entire process. Almost 95% of our loans were restricted to Axis Bank customers. Now anyone can avail of our loan, and we are doing respectable volumes, and the numbers are growing”.

The AA platform was created through an inter-regulatory decision by the Reserve Bank of India (RBI), the Securities and Exchange Board of India (Sebi), the Insurance Regulatory and Development Authority (IRDAI), and the Pension Fund Regulatory and Development Authority (PFRDA) through the Financial Stability and Development Council (FSDC). RBI issues licenses to AAs. AA license holders include CAMS Financial Information Services, PhonePe, NESL Asset Data Limited (NADL)—a wholly owned unit of NeSL, Axis Bank, HDFC Bank, ICICI Bank, Kotak Bank, and the State Bank of India (SBI). “The integration process with the AA takes 2-3 weeks. We have a standard set of APIs certified by RBI. Once RBI provides the AA license, we do the agreement, give them the APIs, integration, testing and certification,” Shetty explained.

Nandan Nilekani, Infosys Technologies chairman and co-founder and founding chairman of the Unique Identification Authority of India (UIDAI), said that “RBI has created a highly-scalable techno-regulatory framework along with the right APIs (application programming interfaces) and interfaces”. The AA framework was designed by the Reserve Bank Information Technology Pvt. Ltd (ReBIT)—a wholly-owned unit of RBI. It is based on the Data Empowerment and Protection Architecture (DEPA) frame, which is also known as the ‘Consent Layer of India Stack’.

“With the supply side from banks in place, I am eager to see AA in 2023 being used at a large scale in all financial products–lending to begin with. AA helps both the customer and the financial institution – both of these parties should adopt AA at the earliest,” said B. G. Mahesh, co-founder and CEO of Sahamati.

But there are a few challenges, one being that “not many people do not know about the AA facility”, according to Shetty. Mahesh, on his part, insisted that “Sahamati will work on AA customer awareness in a big way in 2023″. The second challenge, as Nilekani too acknowledged, is that “building a national ecosystem of this size does take time and always poses a challenge. You have to make the tech work, and the ecosystem needs a dispute resolution body, which is being done through an ODR (Online Dispute Resolution) approach”.

Nilekani concluded, “I am quite bullish that it (AA) has reached an inflection point, and recently the government notified GSTN (Goods and Service Tax Network) as a FIP, which also opens up the case for business lending. Given my experience with such projects, I have seen that while it takes many years to bring ecosystems like Aadhar and UPI to the point of take-off, once you do so, they scale up rapidly.”