Presently, it might be challenging to demonstrate a user's financial history to a third-party organization. It entails notarizing the documents, sharing bank statements in both physical and electronic form, and much more.
The AA network seeks to eliminate all of these processes in favor of a straightforward, digital data-sharing method.
An individual can use an Account Aggregator, a specific type of RBI-regulated firm (with an NBFC-AA license), to securely access and exchange information from one financial institution with whom they have an account to any other regulated financial institution in the AA network.
The Account Aggregator Framework was created in 2021 by the RBI, the central bank of India, to make financial data freely available through data intermediaries.
These intermediaries are in charge of gathering users' financial information from various organizations that keep customer data (Financial Information Providers, or FIPs), and exchanging it with organizations that need it (Financial Information Users, or FIUs), depending on the users' consent.
How does it work?
The FIU will ask AAs for specific data, and AAs will then seek users for permission to share their financial information with the FIU.
Either a web-based or mobile app-based client should be used for this interaction process between AAs and consumers. Once permission has been granted, the AA will ask the FIP to share the encrypted data by sending a request to them. The AA will get the information, who will then give it to the FIU. In order to exchange data with a FIU, users must link their FIPs in the AA app.
What are the benefits of AA framework?
The AA framework is anticipated to boost financial services' effectiveness and advance financial inclusion in the nation. The distribution of credit will benefit from the simple access to consumer financial data, which will also make it easier to underwrite customers who are new to credit or who are underbanked.
It allows for the safe exchange of financial data and aims to lower the transaction fees. Furthermore, it addresses one of the greatest issues plaguing India's banking sector—excessive paperwork.
AA provides small companies with a comprehensive dashboard in addition to simplifying credit risk assessment for FIUs. Businesses may consolidate all of their data in one location and exchange it instantly with different lenders and wealth management companies.
Additionally, customers should also not be concerned about the privacy of their data. The data is not visible to the account aggregators; they only transfer it from one financial institution to another with the owner’s permission. This method is far more secure than distributing hard copies of papers since the data transferred is likewise encrypted.
To provide proper levels of consumer protection, financial education for consumers is essential. Customer knowledge of the effects of financial decisions will ultimately be aided by improved financial literacy combined with the AA framework agenda.