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The Account Aggregator (AA) Framework received a tremendous response within a year of its official release of the account aggregator framework by the RBI. It has already recorded 1.1 billion AA-enabled accounts with 2.05 million users sharing their financial data voluntarily.
So, for instance, an average Indian user applies for a financial service (loan, insurance, etc.). Now their efforts of sharing his bank details, notarising copies for authentication, and much more are simplified. Wondering how? It is through the digitised data-sharing processes of the account aggregator framework by the RBI.
We already had an overview of what is an account aggregator, who are the key players, and how they work in our previous blog.
In this blog, let’s explore the popular use cases. We will also look at how the account aggregator framework is enabling digital data sharing of the user’s financial information in the fintech ecosystem.
Most Popular Use Cases of Account Aggregator Framework
The annual transaction volume (transfer of bank statements) through AAs is expected to reach 5 billion by 2027, as per reports. However, this is only an estimation of the potential transfer of the bank statements.
The framework is much broader than sharing just the bank statements. It is because it involves sharing a user’s financial data (investment, insurance, card details, etc.) through the tamper-proof system. It is shared between the FIPs (Financial Information Providers) and FIUs (Financial Information Users).
Thus, such data sharing opens doors for many use cases, and as and when new users are enabled with AA accounts, new use cases continue to emerge.
Let’s look at some of the most popular use cases of account aggregators for various industries.
Financial Services Industry
The financial service industry is one of the most popular and significant industries to use AA services. It has already proven its capabilities to extend the account aggregator framework’s benefits to MSMEs and underserved populations of the country.
Lending Services
Peer-to-peer lending, Digital Banking Units (DBUs), micro-lending, POS (Point-of-Sale) lending etc., are all examples of modern credit services in India. Apart from traditional lending services, these modern lending services can also provide customer-oriented services. All thanks to simplifying financial data sharing through AAs.
Lending services, whether from a bank, financial institution or a non-bank entity, will be more streamlined. The data-sharing from the AAs will bring ease of access to the critical financial information of the users.
Benefits to the Lending Service Companies:
- KYC details will be fetched from the central database.
- Fraud and money laundering cases will be reduced significantly as the identity details are taken from reliable legal entities.
- Underwriting and credit access will be simplified due to the ease of data access.
- New users can avail of credit services more conveniently. It is so because the details are shared from the central database directly provided by banks.
Wealth/Personal Finance Management
Through account aggregators, wealth and personal finance management services have gone to the next level since the customer onboarding time is reduced drastically. It is reduced from many days to a few hours and sometimes even a few minutes.
Consent-based data sharing of the account aggregator framework has enabled financial service firms to offer tailor-made wealth management services to their clients.
Benefits to the Wealth Management Companies:
- Smooth KYC and customer onboarding
- The clients’ consolidation of assets (stocks, mutual funds, FDs, etc.) is faster and more accurate
- It enables investment behaviour analysis of the customers to offer personalised investment solutions
- It saves customers’ time usually spent providing manual documents by automatically sharing them through encrypted data strings
Income Tax Return Filing Platforms
Be it your personal income tax or indirect tax like GST (goods and service tax), data consolidation is one of the most critical tasks while filing tax returns. AAs can help users consolidate their income information in one statement and thus, calculate their tax liability accurately.
For example, a salaried individual receives salary income but may also have sold a property and have a capital gain tax liability. So, AAs can fetch these details from their bank accounts and create one consolidated statement of an individual’s income from different sources.
What you have on your Annual Information Statement (AIS) on your income tax portal is an excellent example of simplified income tax return consolidation.
Insurance Services Industry
The insurance sector in India is the fifth largest insurance market globally, with an annual 32-34% growth rate. Hence, simplifying business processes at various levels through AAs is a significant market opportunity.
Insurance companies can access customers’ financial information, such as creditworthiness, overall risk appetite, other insurance requirements, etc. using account aggregators’ services.
This information can help insurance companies frame more personalised insurance solutions for the customers, reducing customer acquisition costs.
Benefits to the Insurance Companies:
- Faster customer onboarding
- Better risk coverage analysis will ultimately help these companies perform accurate risk underwriting
- Prevention of fraud while settling the claims through effective spending analysis
- Cost-friendly insurance solutions for customers
Accounting Services Industry
The Indian accounting software market will reach $17.12 billion by 2027 (with a CAGR of 8.5%). As technology has advanced, it has made it easy for companies to manage their books of accounts from anywhere, anytime.
Account aggregators can further streamline various accounting services such as faster reconciliation of accounts, effective accounts payables/receivables management, etc. Let’s look at these individual use cases in detail.
Reconciliation of Accounts
AAs can fetch bank statement details in real-time; hence, the reconciliation of bank accounts, suppliers’ accounts, and customers’ dues become much more simplified. So, with AA-enabled accounts, companies can check in real-time whether a particular transaction is reflected in the bank statement.
Virtual Card Industry
As per the ACI worldwide’s analysis, 71.7% of Indians will use digital payment methods by 2025. Needless to say that virtual card payments have become the need of the hour. AAs can be one of the main support pillars to grow this industry to the next level.
Let’s see how AAs can become crucial partners for the growth of the virtual card industry.
- Onboarding customers for signing up for the virtual cards
- Auto-populating customers’ personal information
- Linking bank accounts to virtual cards
- Reconciling payments and receipts
- Adding money to a card wallet
- Providing card spend analysis to the FIUs
Automated Expense Management
As virtual corporate cards help to manage employee expenses more efficiently, AAs play a significant role in streamlining transactions in real-time. Therefore, with AAs, offering expense cards to employees becomes a few clicks matter.
AAs also help link employee expense cards to the company’s bank accounts. You can reconcile expenses in real-time. Additionally, AAs can fetch other critical user information to help you make more informed decisions.
Neo-Banks
The neo-banking market in India will rise 281% ($48 billion in 2022 to $183 billion) by 2030. It will have a 9% market size of the total fintech market. Thus, the future of neo-banks (fully digital banks with no physical existence) looks promising.
So, herein, the information exchange through AAs will be the most crucial aspect of their growth.
AAs can enable these companies to smoothly onboard a customer, link banking information, update financial data in real-time as well as have a central system to handle all finances.
Final Words
Ever since the SEBI (the Securities and Exchange Board of India) joined the AA framework recently to allow financial data sharing about stocks, mutual funds, and other listed securities, the importance of AA-enabled accounts has risen.
From faster credit lending turnarounds to advising on financial portfolio management, AAs are the game changers. Thus, AAs are here to disrupt the fintech space to revolutionalise how consent-based data sharing can lead to more creative innovations.
