The potential of account aggregators

It’s been said by many before but it merits repetition because it is true. What UPI did for payments in India, account aggregators (AAs) will do for credit. This radical mechanism was launched quietly last week, and it has not received as much attention as it deserves, partly because of a lack of comprehension of what it can do. The mechanism is still in its infancy — eight banks have signed on, including the country’s largest State-owned and private lenders. But, once it expands, it can help track the credit footprint of just about every Indian who wants (more) credit.

The easiest way to explain the mechanism is through pre-paid SIM cards for mobile telephony, used typically by those at the bottom of the pyramid (but not just them). Currently, someone who regularly recharges their phone is off the credit radar; once their telecom company signs on to become part of the system launched last week, they will not be. The expectation is that as it grows, the mechanism will grow to include electronic wallets, telecom companies, maybe even utilities and local bodies, apart from banks and other financial institutions.

Such credit information is only shared through explicit consent, and through licensed account aggregators who do not store the information themselves — which addresses the issue of privacy to some extent. A robust privacy and data protection law, which has been long in the making, should take care of the other issues. The benefits are clear — easy access to credit to borrowers currently out of the credit mainstream (including many millennials); higher efficiency (think faster loans); and fewer defaults, for lenders.