Account aggregators see greater adoption by investment industry

To be sure, the AA network aims to empower millions of consumers with greater access and control over their financial records and expand the potential pool of customers for lenders and fintech companies. Such financial data—pertaining to tax, pensions, securities (mutual funds (MF) and brokerage), and insurance— cannot be shared without the consent of the individual concerned. It will also expand beyond the financial sector to allow healthcare and telecom data to be accessible to individuals.

The AA framework aims to bring banks, insurers, registrar and transfer agents (RTAs) like CAMS and KFintech, depositories—all regulated financial entities —onto a single platform to allow seamless sharing of financial data of investors after getting their consent.

Currently, the banking sector— comprising banks and non-bank financial companies (NBFCs)—accounts for 74% of all data transfer consent, particularly where it pertains to retail and MSME (micro, small and medium enterprises) lending use-cases. The securities market is next, with 25% of such data transfers mainly for personal finance management and demat account opening.

Sahamati, a non-profit organization that is putting in place standards and codes of conduct for the AA ecosystem, has in a report estimated that the share of banking sector will settle down to 58% by 2027. The securities market will see significant growth in data transfers, primarily for personal finance management, wealth advisory and demat account opening. Its share is estimated to climb to 42%.

These numbers shed light on the benefits of the AA ecosystem for the investment industry.

Data gathering

According to Harsh Roongta, chairperson of Association of Registered Investment Advisers and principal officer at Fee Only Investment Advisers, data gathering is a major issue that investment advisers face when dealing with clients. “It is typically a 15-30-day process. This system will allow data gathering to happen in a matter of minutes. This would help investment advisers to also save on manpower and resources needed for data gathering,” Roongta says.

Individual MF distributors, who offer incidental advice to their clients, may not be able to access the AA ecosystem right now as they are not directly registered with the Securities and Exchange Board of India (Sebi). However, consolidated MF data of investors can be accessed from depositories or the RTAs.

Roongta adds that the AA system will help retail clients find easier access to advisory services. “Once the investors’ financial data is available and data related to goals and risk-profiling is fed into the system, a financial plan could be created in a matter of 15-30 minutes, as everything is technology-led,” he adds.

Yash Upadhyay, chief strategy officer of 5paisa.com, says getting the client data will help generate actionable insights for the clients. “It will help to assess the overall portfolio across multiple MFs, offer recommendations on portfolio rebalancing, recommend an increase or reduction in exposure to certain asset classes, depending on client goals and risk profile. Right now, an individual’s data is quite fragmented and available in silos across financial institutions and different government bodies,” he adds.

Client on-boarding is another use-case. “KYC (know-your-customer) data can be accessed through AA system via APIs (application programming interface), this removes the need to submit any paperwork for KYC,” Upadhyay says.

Tejinder Singh, chief business officer, CAMSfinserv, which is one of the RBI-licensed Account Aggregators, says the AA ecosystem can help investment advisers understand whether their clients are under-insured or over-insured, the nature of their income—fixed or variable income —and spending patterns in terms of discretionary or non-discretionary spending.

Optimising the portfolio

As per the Sahamati report, as many as 10 entities regulated by the Sebi, including RIAs (registered investment advisers) and brokers, had joined the AA ecosystem as of 31 October 22.

Sandeep Jethwani, co-founder of Dezerv, a wealth management startup that offers portfolio management services (PMS), says that clients can be offered more personalized solutions since they have better access to their own data . “Clients’ own balance-sheets can be seen more closely and optimized. For example, this can be done if the investments of the client are yielding less than the loans taken by the client,” he says.

Dezerv has joined the AA ecosystem as a portfolio manager .

Duplication of investments is another issue that can get easily be addressed with better access to data.

“A client might have the same MF bought from different channels, say both a bank and a digital platform. The AA ecosystem could help identify such duplication of investments,” Jethwani points out.

“The system can also help in identifying investments that don’t have a nominee,” Roongta says.

“Investors doing systematic investment plans (SIPs) in a mutual fund on a monthly basis can be encouraged to opt for a large lumpsum investment whenever they receive a bonus in their bank account. Through the AA framework, the adviser will be able to track when the clients receive this bonus in their accounts,” says Singh.

He adds the AA ecosystem can also come in handy to identify old investments, which investors might have lost track of over the years.

Data protection

When a customer gives consent to an account aggregator (AA), it collects their digital financial data from one or more accounts and delivers this to the entity that is providing services such as investment advice, wealth management, lending services, etc.

There are three main participants in the ecosystem, a RBI-licenced NBFC that acts as an AA, financial information providers (FIPs) and the financial information user (FIUs).

Entities that are regulated by various financial regulators—RBI, Sebi, Insurance Regulatory and Development Authority of India (Irdai), Pension Fund Regulatory and Development Authority (PFRDA)—can act as FIUs. In other words, only regulated entities can access the AA ecosystem to use a customer’s financial data.

Similarly, FIUs also need to be regulated entities. Right now, banks, small finance banks, insurance companies, RTAs, and CDSL (Central Depository Services) and NSDL (National Securities Depository) are part of the AA ecosystem as FIPs.

FIPs are the entities that store customer data and customer history whether it is do with loans, insurance, investments, etc.

An RBI-licensed AA acts as a digital gateway, where the customer can submit his or her consent to enable data sharing between the FIP and FIU. “The data is not stored with the AA, only the consent is,” says Singh.

He adds that the AA manages customer consent, where the customer can decide on the period for which the data-sharing consent is to be given, the frequency of sharing it, and also revoke the consent when required.

Last year, the government proposed Digital Personal Data Protection Bill, which is expected to further strengthen the data privacy framework in the country once it is passed in the parliament.

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