With the advent of Covid, the banking industry has realized that digitization and intangible/contactless business processes are a must and Open Banking is an important initiative towards it.
What does it mean?
Open banking is the practice of sharing financial information electronically, securely, and only under conditions that customers approve of. Open banking efforts are a big deal for banks, regulators, and third party providers and consumers will eventually have more options for managing their money, borrowing, and making payments.
For more info- (https://www.thebalance.com/what-is-open-banking-and-how-will-it-affect-you-4173727)
Here we are going to understand one of the common and widely anticipated open banking initiatives- ‘Account Aggregator’
What is Account Aggregator? Account Aggregators strive to provide seamless Open Banking facilities by enabling customers’ consent to share their data via digital platforms. It is expected that the entire BFSI industry will rely on Account Aggregator services which will help in faster turn around and better customer services.
What about privacy? The account aggregator platform does not store or save any data transmitted between financial information providers and users. The data shared through the account aggregator is duly encrypted and can only be accessed by entities requesting the data.
How does AA work? Here is a beautiful illustration of the account aggregator framework provided by Sahamati : A collective of Account Aggregator (AA) ecosystem being set up as a non-Government, private limited company
How will AAs benefit Users? For ease of understanding, let us consider a scenario-
- Ram, a salaried middle class person, wants to buy a home. He wants to avail a loan to fulfill his dream of securing a roof over his head.
- As a loanee, he needs to provide several documents such as-Bank Statements, Salary Slips, ITR, Aadhar and PAN. Ram has to arrange all the documents at first and then submit it to the lending institution which involves cost and processing time.
With a single click via a mobile application, the lending institution will receive all the information (thanks to OpenAPI), thus reducing the operating time drastically.
-The data is shared by the Financial Information Providers which comprises Banks, MF Houses, Insurance Providers, Tax platforms.
-The User has the option to revoke the sharing of data and can also individually share individual data items without sharing the full history.
-The AA will share the requested data through the UPI application after authorisation has been obtained from the user.
Inshort Ram will be happy and he can secure his dream a bit sooner.
This seamless and hassle free version of information sharing will be more efficient and productive when all the players in the field adopt the AA framework.