Indicus Foundation paper highlights the role of Sahamati in supporting the Account Aggregator ecosystem

Indicus Foundation has published a white paper by V. Anantha Nageswaran, Laveesh Bhandari and Sumita Kale, in January 2022, titled “Account Aggregators: A Game changer for Financial Inclusion”. The white paper explains the role of Account Aggregators in easing the availability of credit for every customer that deserves credit. The rest of the article quotes and builds upon excerpts of the white paper.

1.0 How Account Aggregation is a game-changer?

The idea of account aggregation rests on three principles,

(i) Making any relevant and usable digital financial data available to lenders for underwriting,

(ii) through a channel that makes the process of data sharing completely seamless and digital and

(iii) in a manner that is customer consented and ensures data privacy.

AA is expected to be the game-changer for credit as it facilitates lenders to transition from the traditional means of collateral-based lending to data-driven cash flow based lending as they have quick access to rich data.  

The far-reaching impact of the Account Aggregation is underlined by the fact that RBI has come out with guidelines for creating a new set of NBFCs, known as Account Aggregators as consent managers and digital data transfer channels for Financial Data. In first of its kind, this has come out of an inter-regulatory decision by the country’s financial regulators: Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDAI), Pension Fund Regulatory and Development Authority (PFRDA) through the Financial Stability and Development Council (FSDC).  

2.0 What are the challenges to be addressed to build a strong ecosystem?

The white paper further delves into the various components that need to come together to create a truly thriving, vibrant and enabling ecosystem, given that it deals with a highly sensitive aspect of customer data privacy rights and requires a cross-sectoral alignment on technological standards, code of conduct and compliance. The paper acknowledges that AA is at a nascent stage in India and a few problems that need to be addressed for potential solutions:

a) How would we monitor the performance of the Account Aggregator framework? 

b) What are the prerequisites for success? How will the challenge of data privacy be addressed? Do pricing and user experience play in the successful adoption of the framework? 

c) What should different players (Government, FIP, FIU, etc.) in the ecosystem do to make it succeed? 

3. Sahamati’s Role in the Account Aggregator Ecosystem

The paper highlights the critical role that Sahamati as a self-organised industry alliance is performing, by facilitating the coordination between different players and setting up the basic guidelines and code of conduct that has given the required kick start to the industry.

The paper mentions important metrics as of 7th January 2022: 97 firms were on board, including 32 banks and 10 insurance companies. According to the AA dashboard set up by Sahamati, by the third week of January, more than 80,000 accounts have been linked, and more than 63,000 consent requests have been fulfilled. (Note: The current data can be found here and here)

Sahamati seeks direction on contributing to a healthy AA ecosystem on multiple aspects, as detailed in various sections of the whitepaper

3.1 Ensure coordination between organisations from different backgrounds

Sahamati has been working with various stakeholders of the AA ecosystem, including multiple regulators, FIPs, FIUs, and now the AAs, to build a coherent framework and, importantly, meets the data privacy norms as per the proposed DP (Data Protection) bill. To facilitate coordinated efforts, Sahamati encourages participants to agree to common participation terms, has built a central registry, laid down standard certifications and is in process of building code of conducts for all stakeholders as well as a central grievance redressal system. However, coordination efforts are expected to become even more complex and critical as non financial sector entities such as telecom join the ecosystem as a FIP. 

The paper underscores the importance of Sahamati in playing the role of a coordinator (as quoted below).

“Many voluntary and not-for-profit initiatives have come up to facilitate India’s transition to a technology led provision of public goods including financial intermediation. The DigiSahamati Foundation (Sahamati) is one of them. It is a self-organised Industry Alliance for the Account Aggregator Ecosystem. Among other things, its goal is to convene people and organisations from different backgrounds for the growth of India’s Account Aggregator Network. Sahamati can therefore be seen as a part of, and an extension of, the India Stack, which is a collection of technology products and frameworks. For example, the Account Aggregator Framework is regulated by the Reserve Bank of India and its technology standards are owned by Reserve Bank Information Technology Pvt. Ltd. (ReBIT)”

3.2 Promote the growth of the ecosystem

Sahamati recognises that there is a long way to go before all participants, including FIPs, AAs, FIUs, regulators, and consumers, fully understand and appreciate the AA framework’s potential and join hands to build a world-class ecosystem.

The paper also acknowledges the massive advocacy and education efforts required to onboard the public and industry onto the AA bandwagon and how Sahamati has given the necessary impetus to the industry.

“Sahamati, as someone that has midwifed the AA ecosystem, is engaged in the promotion of the platform. Yet, it would be useful if the government or the regulators endorse the concept among the public and the industry from time to time, encouraging and reminding them to join the AA platform”

3.3 Transition into the role of Self Regulatory Organisation

The above two roles essentially morph into the fundamental role of an SRO in the long run as required for continuous monitoring and innovation.

The paper acknowledges the benefit a Sahamati can bring to the table as an SRO (as quoted below)

“Sahamati, being a self-organised industry alliance, can evolve into a Self-Regulatory Organisation and also assist in creating a well-rounded monitoring device. Further, it can also be resource cum knowledge repository for the participating institutions – not just AAs but also FIPs and FIUs – for constant technological innovation and upgradation”