How Account Aggregators Can Bring an Era of Democratised Credit

Despite the increasing presence of banks and non-bank finance companies (NBFCs) in remote Indian markets over the past decade, it has recently become possible to leak credit to a group of borrowers who lack credit history credit. With the launch of the Account Aggregators Framework, the Reserve Bank of India (RBI) has empowered it to democratize credit in a way that bridges the gap between available financial loans and millions of small credit borrowers in India. .

Account aggregators are entities that allow individuals to share and access data from one financial institution best website to another in established networks of financial data Aggregator. These aggregators have received approval from the RBI to access and share data.

Structured as NBFCs, account aggregators in India would disrupt the lending system of institutionalized financial institutions that make money by having custody of the borrower's financial data. With the launch of this mechanism to facilitate the availability of credit, the big business of packaging, analyzing, and selling financial information would be disrupted, just as UPI disrupted the electronic wallet business. The eight largest banks in India, including ICICI, Axis and HDFC, have started offering loans through the account aggregation system. This has made loans faster and cheaper.

How do account aggregators work?

Account aggregation collects the financial data of an individual or a household to make it available in the marketplace. It allows clients to aggregate data on all of their financial assets within a single financial institution. Customers may need to provide these institutions with their account credentials (username and password) if they wish to take advantage of the personal finance service. The data is then stored in account aggregation software, allowing access to balance information and transaction records. In addition to financial information, financial advisors may collect additional net worth collected from the borrower, such as property valuations, debt liabilities, and cash inflows and outflows on behalf of their clients. The borrower can also avail services such as loan access and money management access if their banks join the AA data exchange network.

Account aggregators as facilitators of small credit

Several parameters govern the process of making credit available from financial aggregator to a borrower by banks/NBFCs, and having a credit history is one of them. Therefore, for first-time borrowers or personal credit borrowers with little or no available financial records, obtaining credit from banks and NBFCs is difficult. Also, available credit is limited for those whose income is not fixed, such as a self-employed person whose income depends on erratic payments from customers or small business owners whose income fluctuates every month. In the absence of credit history or proof of income, access to loans and personal finance services is even more difficult. Not to mention, lending institutions often require borrowers to pledge collateral to take advantage of lines of credit, again a deterrent to small personal credit applicants.

But with the introduction of the account aggregation service, the creditworthiness of such borrowers can be detected through other data points about the assets owned by the borrower, which would serve as a basis for extending personal credit. Borrowers who have access to online banking can also take advantage of quick credit without compromising any collateral through finance software applications that provide aggregation services like Quicken or Mint.

Lines of Credit, with the launch of the account aggregation service, will enhance and cater to the large number of untapped potential borrowers who might constitute the loyal customer base for a particular banking service. This would make access to credit a real deal for people from all walks of Indian society.

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