India aims to open finance to millions with user data system

Regulators have agreed to allow banks, pension funds, tax authorities, insurers and other financial companies to pool customer information – once the user consents – to make transactions smoother. . If the system works, businesses will be able to access large amounts of data in seconds to assess a small business’s creditworthiness, recommend a wealth management product for an individual, or tailor an insurance policy for a family.

The Account Aggregator system, years of planning, was officially introduced on Thursday. This is an ambitious approach that combines privacy protection with credit scoring. This is how it works:

  • On the one hand, financial information providers, such as banks, tax authorities and telecommunications operators, who have financial information about people and businesses and can provide it in a standardized format.
  • On the other hand, users of financial information, such as non-bank lenders and financial technology companies, who search for data held by FIPs but have so far had to face a cumbersome and costly process to get there. to access.
  • In the middle are the account aggregators, who act as intermediaries to smooth the flow of data and reduce the time required to process information.

The approach could be a game-changer in a country where millions of disadvantaged people and small businesses are denied loans because they lack collateral and where the relatively young credit rating system covers only a tiny fraction of the debt. population. It could expand the potential customer base for lending startups such as NeoGrowth Credit Pvt and Lendingkart Technologies Pvt as well as tech giants like Amazon.com Inc. and Facebook Inc. which are expanding into the Indian fintech market via products. such as small business loans.

“The Account Aggregator model will help democratize data and transfer power over the accessibility and use of data to data owners rather than data owners,” said Rajeshwar Rao, deputy governor of the Reserve Bank of India, speaking at the launch. .

Among the beneficiaries is Rathanlal Jain, who owns a small shop selling party supplies such as scallops and decorations in the bustling Nagarathpet shopping district in Bangalore.

The 30-year-old businessman gave his consent for the system to allow Lendingkart to access his bank statements. The startup’s algorithms analyzed 10,000 variables on the information to determine that Jain was eligible for the credit. “Almost 600,000 rupees ($ 8,210) quickly got into my bank account without any collateral,” Jain said. Lendingkart has processed more than 2,000 loan applications like Jain’s through the new system over the past few weeks. and approved a third. Without the new system, accessing and processing customer data would have been much more laborious and time consuming.

“Over 120,000 clients come to us for credit each month, but just over 10% of them are able to provide us with the digital financial data to process their requests,” said Deepesh Goel, Chief Strategy Officer. of the Bangalore-based startup. “The Account Aggregator system could bridge the data gap and make nearly 90% of businesses eligible to apply for digital credit. “

The system allows users to pull together all kinds of financial data – starting with bank statements, but possibly even mobile bill payments, tax returns, and retirement fund balances – which they can then choose to share instantly. and temporarily looking for loans, investment products or even insurance. The country’s gargantuan goods and services tax system is expected to enter the system for the financial data of users and supplier companies.

Newly established digital rules and practices in India lay the foundation for the data sharing system. The central bank now requires financial data to be reported in a standard machine-readable format, which means it is easier to slice and share it automatically.

“Most countries have a framework of data laws and privacy laws and recognize the rights of individuals over their data, but the challenge has been to make the data rights operational,” said Siddharth Tiwari, manager. Asia at the Bank for International Settlements. In India, we are reviewing the world’s first open, revocable and granular system based on digital consent, where the user is empowered to decide who can view their bank and other financial data. “

A crucial benefit for those less affluent is the potential access to unsecured loans. The new system could help a person prove their creditworthiness with information such as past financial transactions, coupled with parameters already available such as the location of the person or business, and the segment in which a business operates.

World Bank data shows that more than a quarter of people on the planet with bank accounts save money in the formal financial system, but only about 10% are able to borrow from the same system without collateral. tangible, Tiwari said.

“It’s not even an emerging market or a developing country problem,” he said. “The borrowing challenge is bogging down even high-income countries.”

The AA system is the starting point for a consent architecture that starts with financial services, but can also be applied to healthcare data and employment data, said Nandan Nilekani, co-founder of ‘Infosys Ltd., which has been involved in the country’s digital Aadhaar. the identity and projects of the financial backbone of the UPI.

“This is a transformative initiative,” Nilekani said at the launch. “No other country in the world has developed such a comprehensive data sharing framework that can be deployed to cover over 50 million businesses and over 1 billion people.”

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