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Mumbai: India unveiled a data-sharing system that could revolutionize investment and credit, giving millions of consumers greater access and control over their financial records and expanding the potential pool of customers for lenders and fintech companies Is.
Regulators agreed to allow banks, pension funds, tax authorities, insurance companies and other financial firms to pool together customer information — one-time user consent — to simplify transactions. If the system works, firms will be able to access vast amounts of data within seconds to assess the creditworthiness of a small business, recommend a wealth management product to an individual, or design an insurance policy for a family. will do.
The account aggregator system in the planning years was formally introduced on Thursday. It’s an ambitious approach that combines privacy protection with credit reporting. Here’s how it works:
- On one side are financial information providers, such as banks, tax authorities and telecommunications operators, who hold financial information about people and businesses and can provide it in a standardized format.
- On the other hand there are financial information users, such as non-bank lenders and fintech firms, who look for data held by FIPs, but have so far had to deal with a cumbersome and costly process to access it.
- In between are the account aggregators, acting as intermediaries to smooth the flow of data and reduce the time required to process the information.
The approach could be a game changer in a country where millions of disadvantaged individuals and small businesses are denied credit because they lack collateral and a relatively young credit-rating system covers only a small fraction of the population. . It is owned by NeoGrowth Credit Pvt and Lendingkart Technologies Pvt as well as Amazon.com Inc. and Facebook Inc. Lending to technology giants, including technology giants, could expand the potential pool of customers for startups that are expanding into India’s fintech market through products such as loans to small businesses. .
“The account aggregator model will help in democratization of data and transfer the power of access and use of data to the owners of the data instead of the data holders,” Rajeswara Rao, Deputy Governor, Reserve Bank of India said on the sidelines of the launch. .
Rathanlal Jain, who owns a small store selling party supplies such as celebrations and decorations in Bangalore’s sprawling Nagarathpet commercial neighborhood, is among the beneficiaries.
The 30-year-old businessman gave his consent for the system to give Lendingkart access to his bank statements. The startup’s algorithm crunched 10,000 variables on the information to determine if Jain was eligible for the credit. “About Rs 600,000 ($8,210) was swiftly credited to my bank account without any collateral,” Jain said.
Like Jain, Lendingkart has processed over 2,000 loan applications through the new system in the past weeks and approved a third of them. Without the new system, accessing and processing customer data would have been significantly more laborious and time-consuming.
Dipesh Goyal, Head of Strategy at the Bangalore-based startup, said, “More than 120,000 customers approach us for credit every month, but only 10% of them are able to provide us with digital financial data to process their applications ” “Account aggregator systems can bridge the data gap and enable nearly 90% of businesses to receive digital credit.”
The system lets users pull together all kinds of financial data—starting with bank statements, but eventually also mobile bill payments, tax filings and retirement fund balances—which they can quickly and temporarily access loans, investment products, or more. Even those in search of insurance can choose to share. . The provider is expected to come across the country’s vast goods and services tax system for financial data of users and businesses.
India’s newly established digital rules and practices form the basis for the data-sharing system. Central banks are now required to report financial data in a standard, machine-readable format, which means it is easy to automatically slice and share.
“Most countries have a framework of data laws and privacy laws and recognize individuals’ right to their data, but the challenge has been to govern rights over data,” said Siddharth Tewari, Asia head, Bank for International Settlements. “In India, we are witnessing the world’s first open, revocable, granular digital consent-based system where the user has the right to decide who can see their banking and other financial data.”
An important advantage for less affluent individuals is the possible access to loans without collateral. The new system can help an individual prove his credentials with information such as past financial transactions, coupled with already available parameters such as the location of the individual or company and the segment of business operations.
World Bank data shows that more than a quarter of the planet’s individuals with bank accounts save money in the formal financial system, but only 10% are able to borrow from the same system without tangible collateral, Tewari said.
“It’s not even an emerging market or a developing country problem,” he said. “The challenge of borrowing also affects high-income countries.”
Infosys Ltd co-founder Nandan Nilekani, who is associated with country-based Aadhar Digital, said the AA system is the starting point for a consensus architecture starting with financial services, but equally focused on healthcare data and jobs data. can be applied from. Identity and UPI financial-backbone projects.
“This is a transformative initiative,” Nilekani said at the launch. “No other country in the world has developed such a complete data-sharing infrastructure that can be deployed to cover more than 50 million businesses and over a billion people.” –bloomberg
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