April 18, 2024

What are the Different Use Cases of Account Aggregation?

After the much-awaited RBI account aggregator came into existence, leading experts revealed that technology has immense potential to be used across multiple use cases -similar to the manner in which UPI (Unified Payments Interface) are being used.  

Account Aggregator or AA has been quite a buzzword in the modern banking sector. The framework of AAs or Account Aggregators helps in facilitating sharing financial as well as other core information in real-time and in a data-centric manner between multiple regulated entities. The data is made available to both service providers as well as users with the help of this mechanism.

KEY POINTS

Different Use Cases with AAs or Account Aggregators 

In a typical Account Aggregator ecosystem, FIUs (Financial Information Users) are able to come up with a wide range of use cases. When you are onboarded to the account aggregator ecosystem, here are some of the common use cases you will come across: 

#Lending 

In the modern era, a borrower can go ahead with providing the lenders with PDF documents or hard copies containing crucial banking and other core information. However, it is not regarded as the ideal method as the borrower will spend ample time in collecting meaningful data that is required to be supplied. Moreover, the lender is also expected to process the existing data with the help of screen scraping process. To top it all, these documents are not tamper-proof.  

  • Banks and NBFCs can think of leveraging the benefit of the massive opportunity offered by Account Aggregators in boosting the safety of lending velocity. 
  • Account Aggregators helps in eliminating all possible roadblocks to ensuring data access. This allows them to handle more loan applications in a reduced period of time.  
  • Lenders leveraging Account Aggregators can get access to real-time data out of borrowers. The data is digitally signed by the FIP or Financial Information Provider -like the bank of the borrower. 
  • Account Aggregators can offer assistance to lenders in minimizing the overall risks of the respective loan portfolios. NPAs are expected to be reduced.  
  • Lenders are able to deliver a highly customized loan product to the customers.  
  • Loan monitoring offers the most critical feature. Lenders are capable of tracking loan amounts after the same has been disbursed -permitting early intervention and small-scale loan loss provisions.  

#Wealth Management 

In India, professional wealth managers depend significantly on the respective clients to generate data on a regular basis. In this case, the customer has the option to share the credentials with the dedicated wealth manager -for eliminating the need to provide data for the clients. However, it is not regarded as the best option to achieve the same. 

A data principal is able to offer account aggregators recurring permission to share respective data out of selected FIPs with the concerned wealth manager. The approach helps in providing a wide range of benefits, including: 

  • The data principal is not expected to discuss the credentials of the FIPs with other data principals  
  • The wealth manager will not be dependent on the willingness of the clients to disclose sensitive information. 
  • The wealth manager is capable of receiving data in digital format -fed directly into the platform of the respective wealth manager for generating actionable reports.  

The market of wealth management in India is smaller. However, it is expected to grow into a large-scale market. Wealth managers can consider committing some time to acquiring new clients with the help of AAs. At the same time, technology will help in the day-to-day operations. 

#Personal Finance Management 

In India, the utilization of PFM or Personal Finance Management application is quite low. Most of us tend to assume that we understand our finances while not requiring assistance. In India, there are some PFM apps that are able to view the bank account statements through one of the following methods: 

  • A user will be uploading PDF files 
  • The app will receive the login credentials of the users 

Both methods are known to be ineffective -especially if you prioritize your privacy. During the entire lifetime, an individual is expected to make a number of core financial decisions -right from creating the savings account to choosing the right banking institution, and so more. Individuals are, therefore, suggested to make use of reliable Personal Finance Management tools to offer actionable reports along with graphically presenting data.  

#Robo Advisory 

In India, applications related to Robo Advisory functions are still in the early stages. Robo Advisory solutions are highly preferred by millennials. The concept of Robo advising is dependent on technology. If the algorithms are functional and updated quite regularly, you can expect highly impressive actionable reports.  

Most people in our nation are now leveraging the services offered by Robo Advisory solutions to invest lucratively in mutual funds. When these apps have real-time access to your core financial data, the Robo Advisory application is able to ensure the delivery of better recommendations. Some of the core features of Robo Advisory apps are: 

  • Recommendations for effective portfolio assessment and rebalancing 
  • Making the switch to ensure direct investment analytics 

The collection of data in the ongoing arrangement turns out to be a highly inefficient operation. Robo advisors in context with Account Aggregators in the coming future will be capable of receiving meaningful, digital data straight out of data inventories (insurance policies, mutual fund depositories, and FIPs like banks). 

#ID Verification and KYC 

The process of sharing data is simplified once your institution or bank provider has been registered upon connecting to the Account Aggregator system through APIs. You are no longer required to submit paperwork for completing KYC while applying for a new loan or investing in a mutual fund. 

All you are required to do is to offer India account aggregator permission to share data with the respective organizations. The AA is capable of digitally extracting information from the bank and sending to the organization or bank wherein you can ask for a new investment.

Conclusion 

As you will unify your data in a single place and offer a single digital framework to exchange the same in real-time, account aggregators will offer you the capability to effectively transfer data between different financial providers.

Also read: Introduction to account aggregators bringing revolutionary in financial data sharing

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