Account aggregation – Untested revenue model, product-market fit poses a challenge
Mandar Mhatre
CXO with a proven track record of scaling and institutionalizing businesses. Helping companies with strategy, innovation, technology adaptation, culture, and fund raise. Drive growth, scale, profitability, and valuation.
Well intended rules, but too early and with many gaps.
Indian regulator, RBI announced draft account aggregation (AA) norms couple of months back. While the idea in principle is excellent, here are few aspects that need to be reconsidered.
RBI has mandated that requisition for such services needs to be backed by appropriate agreements/ authorizations. While RBI has not specified what appropriate agreements are, we can safely presume that they would be worst common denominator of all underlying asset classes (in best case hope it is similar to what is required for a broking account). All such documentation as any Indian will vouch for is time and effort consuming (inspite of e-kyc possibilities). In fact typical cost of collecting such documents can range from Rs 200 to Rs. 1,500. Who takes that effort and bears that cost is unclear?
Secondly, customer’s willingness to pay for any sort of fringe services is untested. In case of AA, apart from providing a consolidated view there’s no real value add. As a result, why would a customer pay for something which she can quickly gather by logging into 4-5 different sites? (e.g. CAMS for mutual funds, respective banks and insurance providers, etc).
Separately would a portfolio manager or any such end user with client authorization pay for accessing this information? Even if they do agree to pay, how much is this information worth and will they be able to recover it from the client. Further will RBI allow targeted advertising on such platforms? These questions for the time, pose risk to the revenue model.
Thirdly, there remains risk of abuse. While the customer information is not stored, what prevents a hacker or even legitimate requests (from say tax authorities) to use the platform. India’s track record in such things in not stellar (multiple hacking cases, (ab)use of aadhar info to build criminal cases, etc). Is the customer willing to digest this risk?
What prevents a hacker or even legitimate requests to (ab)use the platform?
Finally a big nail in coffin is capital requirement. As I had time and again said that innovation and disruption ought to be built frugally. With unclear revenue models and uncertainty over whether this type of service will be accepted by the customers, Rs. 2 crore seems to be high enough amount to discourage real entrepreneurs from delivering it. Only existing large companies with deep pockets are likely to invest but here also incentive to invest in something like this is low without cross-selling opportunities.
Innovation and disruption ought to be built frugally
Before I close, one last question: what happens to existing provider of similar free services – will they shut shop? Will their access to bank accounts and fund accounts be automatically cancelled in spite of explicit permissions from the users. Also what happens to apps (Indian and foreign) that access sms data and emails to build your portfolio and analyze spending patterns?
While no one doubts RBI's intention, sand-boxing these guidelines - along with many others targeting fintech - will allow such businesses to innovate and thrive. After few such entities are large enough, RBI can consider bringing these entities under formal regulation.
PS: Here’s link to draft norms from RBI’s website.
https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=36394
sReleaseDisplay.aspx?prid=36394