As with most financial service products and services, loan approval process is proudly masqueraded as a complete digital process by both the mature, large NBFCs as well the upcoming, tech savvy start-ups. The so-called shift to digital process has been a mere change to customers uploading documents or using WhatsApp to send PDF files instead of submitting physical paper based documents. It remains a tedious process for customers to put together a gamut of documents and then prepare them for digital submission. Financial data is often scattered in various forms and across entities and it is a time consuming to consolidate this data and make it available to the lender in the right format.
Current digitalization has not brought transformational changes lenders as well
Lenders often see dropouts during the application process, even if it is a digital process where documents need to be uploaded. The veracity of data shared by some of the loan applicants is also under question, considering the possibility of un-authorized, unauthentic information being submitted without a robust system to validate the data. Lenders who have not migrated to facilitate digital uploaded statements and documents are worse off. Current methods in use, such as, hard copies and the use of third-party agents to move the paper-work are highly susceptible to leaks and pose privacy concerns.
Digitalization must embrace the ability of digital technology to collect data, establish trends and help make better business decisions.
Account Aggregator is a path breaking initiative designed to transform the way financial data is sought and shared. It is an interface that will allow users to share their financial data held in various accounts (Bank, Mutual funds, Insurance, GST and Pension funds, etc.) on a real time basis. As the data transfer is facilitated from point to point in an encrypted format, it brings high reliability and security in addition to speed.
How does Account Aggregation work?
Account Aggregators help Financial information users (such an NBFC offering a loan) to gain access to a customer’s complete financial footprint by transferring data from various Financial information providers over a single platform. The data is transferred via APIs in an encrypted format after obtaining the consent from the customer. The encrypted point to point, machine readable data transfer ensures data privacy and the consent architecture at the backend allows for varying levels of consent. Account Aggregators are regulated entities licensed by RBI.
How does Account Aggregation help improve the lending process?
Historically, lending process in India involves a lot of paperwork and even physical verification. Let’s look at some ways that Account Aggregation will revolutionize lending.
- Paperless, Secure and Reliable
Account Aggregation enables digital transfer of a customer’s entire financial footprint directly from the Financial Information Provider (where the customer has assets) at the behest of the customer, which can be readily revoked at any point of time. This eliminates the need for vetting, verification and paperwork. Account Aggregation can potentially even optimize the Risk Control Unit in financial institutions that carries out physical checking of the documents.
- Consent driven selective sharing of Data
The customer has the choices at multiple levels. He can select the institutions he wants to link with the system, select specific institution for providing access to information seeker, (as there is no blanket consent concept), periodicity, duration and expiry date of the data pull. Thus the customer has complete control over his or her data, and on a need-basis can share the same by approving consents triggered by lending agencies. The consent can be revoked at any point of time, and information seekers are bound not to proliferate the data apart from their immediate use. Data protection bill in India on the lines of GDPR will make the ecosystem even more secure.
- Reduced Drop-out rate
Since Account Aggregation reduces the need for paperwork, it actively reduces the dropouts by customers in the loan application process. This creates a quicker and hassle-free customer experience.
- More Accurate and faster risk Assessment
Receiving data in a digitally certified format saves hours of time and makes risk assessment much faster and more accurate. In future, AI and ML based technology can provide customers even an instant eligibility response.
- Asset based to Flow based lending
With Account Aggregation providing the data regarding the actual cash flow situation of the customer, Flow based lending can gain prominence. NBFCs will be able to increase the quantum of underwriting with a wider target pool.
- Wider customer network
Account Aggregation brings into the network a sizeable new customer segment which may have been out of the credit cycle due to knowledge asymmetry or perhaps having no access to credit before, thus making their credit scores as good as any beginner’s. In the absence of formal financial records, Account Aggregators can help small businesses share alternate financial data with lenders such as tax repayments, online bill payment behaviour etc. This allows NBFCs to scale faster without the risk involved in the process.
As more and more Financial Information Providers including Government entities such as income tax and GST start participating on the system, the power of AA will see exponential impact on the lending eco system in India
Account Aggregation heralds an era of empowering individuals and lending institutions with secure, transparent financial data based on consent to walk the true digital path.
To learn more about our account aggregator platform CAMSfinserv, please visit www.camsfinserv.com