Getting Account Aggregator past its most critical crossroads yet

'UPI-like moment’.?

If you’re a FinTech buff, you’ve likely slipped into this trite cliche every so often.

The phrase has become entrenched in FinTech parlance because the resounding success of UPI is a benchmark against which we judge the success of all ostensibly disruptive pieces of technology or digital public infrastructure – IRDAI's proposed Bima Sugam platform, ONDC for e-commerce, and Account Aggregator for information sharing.?

We don’t know whether all these will play out like the success story that UPI is. But when it comes to Account Aggregator, I believe the comparison is merited. The ecosystem is truly disruptive – it has simplified sharing of sensitive financial information, secured data privacy, and democratised access to financial information for small and big players alike. And it is being marketed like the success story it’s projected to become – the RBI is running a pretty elaborate campaign to create awareness about it even among laymen.?

But it is not just its capabilities that place Account Aggregator in great company – it is also the complications being faced by this DPI at this stage that are reminiscent of UPI’s early days.? (Read our case study on the Account Aggregator usage and adoption?here)

FIPs blow hot and cold?

UPI went live in 2015 with only about 20 banks?onboard.?Major players like SBI and HDFC Bank were conspicuous by absence because at the time they were interested in protecting their digital services like mobile apps and net banking. They joined the ecosystem more than a year later, recognising its potential impact.?

Account Aggregator is experiencing a similar bump in road. Financial Information Providers (FIPs) may have onboarded on the framework, but they might not be active. According to a?report,?AAs are reporting failure rates as high as 99.99% among major banks, often due to data being shared in incompatible formats, or by imposing restrictions on the number of data points shared.

Capacities on the FIP and FIU sides are not balanced, and that’s causing some teething issues. Banks’ systems are burdened by the sheer volume of requests that compound at each stage of information sharing, from AAs themselves to the end user:?

• According to Sahamati’s FIP-AA?mapping,?55 out of 100 FIPs are integrated with multiple Account Aggregators. ?
• These AAs have further partnered with multiple FIUs each.?
• The same end user might be seeking a financial service on multiple platforms, giving their consent to pull data numerous times.?

The number of API calls made on banks’ systems progressively increases, tying up their bandwidth and resulting in lower success rates for Account Aggregators. And it is fair for banks to dither when the incentives for FIUs and FIPs to be on the framework seem as unbalanced as the calls on their respective capacities.?

The Account Aggregator ecosystem can tide over this rough patch if two things are done –?an incentive-sharing framework is put in place; and data quality and capacity issues are addressed.?

Ironing out the kinks

As far as incentive-sharing is concerned, FIPs consider themselves to be at a disadvantage – these big players are required to share information with others, putting them at risk of losing their market share to potential competitors. It is incumbent upon ecosystem players to work out a framework under which FIPs are rewarded with fair incentives, without burdening FIUs and AAs.?

On a granular level, this can be achieved through measures like agreements to pass on the incentive of lower costs of loan processing to FIPs. On a larger scale, a?pricing mechanism?needs to be drafted and implemented that fairly compensates FIPs for sharing information, FIUs for facilitating exposure to new customer bases, and AAs for enabling this information transfer in a secure quick manner.?

Can TSPs turn things around?

Technology service providers might not be front-and-centre in the Account Aggregator framework, but they provide critical services to mechanise the workflows required for the ecosystem to function – they develop the modules required to connect FIPs and FIUs with Account Aggregators. ?

TSPs fall largely into three categories:?

1. Data Standards TSPs that help implement FIU and FIP modules.?

2. Data Analytics TSPs that help make sense of this data.?

3. User Experience TSPs that design product user journeys.

By partnering with TSPs, FIUs can help solve for issues that come with sourcing data from FIPs. After raw data is funnelled through Account Aggregators, TSPs can run analytics on it to derive more accurate conclusions while underwriting, credit decisioning, loan monitoring, wealth management, and lots more.

(If that interests you,?get in touch?to experience our bank statement analyser,?BankConnect) They help not only standardise data shared in inconsistent formats by FIPs, but also enrich it to make it immediately usable and actionable.?? Partnerships: the way ahead?

The provision for TSPs is, in many ways, enshrined within the Account Aggregator framework. TSPs are often players with proven expertise in areas like data analytics, credit decisioning, early warning systems for collections, cash flow forecasting, fraud detection, risk intelligence and management, and more. These capabilities form their?core functions.?Therefore, even though financial institutions can develop FIP-FIU modules internally, partnering with TSPs is indispensable to derive value from the AA ecosystem.?

TSP partnerships and their criticality within the Account Aggregator ecosystem are in step with the larger trend of coalescence we’re seeing in the industry. FinTech players are getting closer than ever to licensed entities through acquisitions and partnerships (case in point: FinTechs and NBFCs) – ringing in a new era where lines between regulated and unregulated entities in increasingly blurring.?

That's all from me this week!

Cheers,

Rajat