Account Aggregator Use Case for Payment Aggregators

24 Dec 2022

Everyone in the BFSI space is talking about the Account Aggregator (AA) framework and how it is the next big thing. Some say it is the UPI of Data, while some say access to Financial Data with a customer-centric approach that the world will take lessons on.

From the government to the RBI, everyone has realized the potential of the AA framework and is working hard on bringing banks and other financial institutions to join the league and become a part of the AA ecosystem. AA is a single framework that gives easy access to all financial information and banking data on one platform, giving individuals control over their financial data, which otherwise remains in silos. This is also a great model for lenders and fintech companies to expand their customer base.

Prevalence of Lending Use-Case

One problem the lending industry faces is consent management and managing recurring data for Credit Monitoring or Portfolio Management. The AA system allows the lending industry to access the banking data of customers through the FIP via customer consent and also get the data required for managing and monitoring use cases. For example, for anyone working with a bank or an RE (Regulated Entity), Portfolio Monitoring has been a challenge. Assuming that models can be built for monitoring use cases to observe customer behaviour and add up with market scenarios, the AA framework can help the industry assess or foresee risks and come up with mitigation measures.

The process of FIUs getting the data effortlessly and in a single consent (for recurring fetch) from the end customer is an advantage of this ecosystem. Data analytics plays a major role here and dictates how financial data should be assessed, including risk and behavioral patterns. Furthermore, to evaluate early warning signals of market scenarios, AA analytics will help in the decision-making process.

Use Cases of Account Aggregator Beyond the Lending Space

The AA framework has multiple use cases beyond lending. It allows better decision-making capabilities for Risk Management, KYC, Onboarding, FRM & many other segments.

One of the use cases of AA is Payment Aggregation – entities where data from the AA has been leveraged for KYC while onboarding the merchant. Payment Aggregators are RBI-approved companies who have the license to take entire ownership of onboarding, risk assessment and settlement.

All entities that have got the Payment Aggregator license are now regulated and will have to innovate and build stronger risk assessment engines. The Account Aggregator framework can be a great medium for assessing risk & doing KYC.

With more FIPs & FSRs being part of the ecosystem like GSTN, SEBI-regulated entities, we can see increased adoption of AA for the risk assessment model for the end customer.

AA as a Tool for Fraud Risk Management – Payment Aggregator (PA) Perspective

As PAs are being pulled into the regulatory ambit, (being newest Regulated Entity (RE) by the Central Bank), the onus on Fraud Risk Management has increased multifold. As we all know, majority frauds happen at the payment legs across the world. PAs have to be one step ahead in Fraud Risk Management. The largest risk a PA (who is primarily responsible for Settlement of the funds to the Merchant) carries is to ensure the funds getting settled are for genuine transactions & genuine goods & services provided by the Merchant. The payment industry today lacks additional data points to access a foul play by merchants as they have access only to Transaction Data with PA framework.

Currently, Risk Assessment is primarily being done during Merchant Onboarding wherein thorough KYC is performed of the Merchant. Post Merchant goes live, there are hardly any measures, controls or innovation to do continuous risk monitoring by looking at data points beyond Transaction Data. This is where Account Aggregator can solve the problem for newly regulated RE’s. With access to Banking Data / GSTN Data & lot more FSR’s participating as FIP’s, the richness of data can add an immense value to assess risk of a Merchant.

Thanks to one consent framework, which

  1. can allow continuous flow of recurring data,
  2. seamless Merchant-onboarding experience &
  3. Unified Consent Management Framework through AA,

risk models can be built to assess the overall health of the Merchant.

Merchant Risk Monitoring will be a great tool to check frauds by Merchants. Based on the Transaction Data & Financial Data coming from AA, the Fraud Risk team can do a combined behavioural pattern analysis & can act accordingly.

To conclude, Payment Aggregators are in a dire need of innovation and Account Aggregator framework can be a game changer for the industry.

About Author:

Oomkar Kulkarnie is the Head of Product & Technology, at 1pay.in, one of the leading payment aggregators in India. The author can be reached at oomkar@1pay.in for feedback and comments.