HOW PRICE WARS HURT ACCOUNT AGGREGATORS

These NBFCs play an important role in financial inclusion. But the business model is broken

- Arti Singh 

Sometime in 2019-20, Reliance Industries Ltd and Aditya Birla Group, among India’s largest conglomerates, surrendered a newly-approved licence they received from the Reserve Bank of India (RBI), the country’s central bank. That licence was for a special category of non-banking financial company (NBFC) called ‘account aggregator’.

Why did the two conglomerates give up the licence? While they did not respond to a clarification sought by Mint, it is possible they did not find a solid business case.

The account aggregator guidelines were first released by RBI in September 2016 and the framework launched in 2021 with an important role in mind. The aggregators would be a node thus far missing in India’s financial inclusion story. 

Millions of people and small businesses are excluded from accessing loans, insurance and other financial products because banks and insurance companies lack access to customer data. There is a sea of financial data about us and our spending behaviour. But they are often spread across multiple organizations. In the case of loans, this makes the whole process—starting from data sharing to underwriting to disbursement—tedious and time consuming. In many cases, it leads to customer drop-offs, also resulting in loss of business for a bank.

The account aggregator’s role is to fetch or pull customer data from one financial institution (known as the financial information provider, or FIP) and pass it on to another financial institution (known as the financial information user, or FIU), after getting the customer’s consent. The FIPs could be the banks, asset management companies, depositories and insurance companies. The FIUs could also be banks, brokers, alternative investment funds and insurance companies, among others. In short, the account aggregator links the two sides and is supposed to ensure the relevant data flow in a structured way.