Data is the new Oil. China has nationalised it, Europe is trying to regulate it (GDPR) while the US is divided on philosophical grounds. India, on the other hand, is doing something radical about it - by utilising Account Aggregators (AAs).
What is an Account Aggregator?
AA’s are intermediaries - licensed non-banking financial companies (NBFCs) – which collect and consolidate the data you provide to banks/lenders, wealth/insurance service providers, tax authorities or telecom operators (aka Financial Information Providers - FIPs) and share this data, with your consent, with Financial Information Users (FIUs). These include any institution that is registered and supervised by any of the financial sector regulators (across banking, lending, financial planning and investments, insurance and pension).
Whilst traditional credit bureaus already collect customer liability data, AAs will have access to customer assets and transaction data, which should improve data analytics. The objective is to increase financial services penetration and approval rates for loan applications while reducing transactional friction. Over time, more data (through things like GST and income tax) will flow through as well.
So what is the impact on incumbents and fintechs?
AA's represent both a challenge and an opportunity for incumbent banks and NBFCs. Sure, they lose client-exclusivity and may see higher churn rates, but the opportunity for them to gain from the widening overall market, especially SME and retail could be lucrative.
In my view, this building block will mean a wider, and better choice for consumers and give them more control over their data. Incumbents might lose their ‘moats’ of proprietary data and hence could, over time, de-rate as businesses. Fintech platforms involved in loans and marketplaces, robo-advisory companies and neo-banks may all get a boost. With AAs, competition gets a leg-up and innovative business models, unimaginable today, will spring up. We could see increased partnerships between banks, NBFCs and fintech platforms. Watch this space.
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What next for China? Samir discusses the regulatory clampdown including two other sectors not yet hit - housing and healthcare.Read More 14 September 2021
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