Role of Loan Service Providers in Account Aggregator Ecosystem
This Pragati webinar held on 23rd April 2023 was focused on laying out the opportunities and benefits for Loan Service Providers (LSPs) to augment the Account Aggregator (AA) ecosystem.
LSPs are customer-facing apps or platforms that handle loan requests on behalf of multiple lenders. The AA framework allows for multi-lender consent on a single screen, and customers can provide consent to multiple lenders without the need for multiple OTPs. This design aims to provide customers with multiple choices and lenders with access to markets.
The webinar witnessed a keynote address from Hrushikesh Mehta, Senior Vice President of Financial Services at Open Network for Digital Commerce (ONDC). The keynote address highlighted how AAs have revolutionized data sharing by allowing secure and standardized transfer of financial data with consent. This benefits the lending ecosystem as it eliminates the need for custom integrations & reduces the barriers to entry for small players.
Combinatorial Innovation
The keynote address stressed how AAs are instrumental for ONDC in creating an open network for lenders, LSPs, and buyer apps, for lenders to access a wider range of data, and for LSPs to reach more lenders. ONDC plans to onboard almost 10 to 15 LSPs and 10 to 15 lenders in the coming months. The ultimate goal is to provide financial services to the most underserved segments, including unsecured loans for MSMEs and GST invoice financing.
The address delved into the significance of AAs to enable a smoother loan application process, with loan sanction in six and a half minutes and ten minutes for loan disbursement, benefiting end-users, lenders, and LSPs. The webinar also addressed the need for an agreement between the Account Aggregator (AA) and Loan Service Providers (LSPs). The discussion acknowledged the need for further thought and consultation with regulators.
Process Flow for LSPs
The flow of data involves the LSP requesting the FIU for consent, which is then forwarded to the AA, and the LSP receives consent handle IDs. In the case of multiple lenders, the LSP will receive multiple consent IDs. The webinar addressed the changes required when LSPs come into the picture and the back-and-forth of APIs between the LSP and FIU for consent requests.
LSPs are responsible for encryption and redirection in the AA flow, while Financial Information Users (FIUs) handle encryption in the FIU flow. No data is shared between LSP and FIU, as LSPs are non-regulated entities. Since LSPs only handle redirection, a few small changes are required at the AA end, such as the implementation of multi-lender consent and the generation of a unique LSP ID for identification purposes. The AA should also enable redirection and share the encryption key with LSPs for secure data sharing during redirection.
Find the presentation shared in the session here and the link to the complete recorded session here!