Account Aggregation — A Long Smooth Road to Success in Lending, with a Few Hurdles | Data Sutram

Account Aggregation — A Long Smooth Road to Success in Lending, with a Few Hurdles

Financial
Barnika Bhandari

Barnika Bhandari

September 30, 2021

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The “Chicken vs Egg” paradox has piqued curiosity in various domains of life and the lending scenario in a country as vastly populated as India shows a clear example of this phenomenon.

However, this situation is slowly but surely undergoing a radical change. With the introduction of GST and UPI in the Indian payments market, prospects for the conversion of short term lending to finance small businesses are looking optimistic. Steering towards a digital transcendental curve, Account Aggregators are here to demystify and unite the seemingly massive gap between loan acquisitions and business owners.

The key component ensuring the success of a “one stop” platform for solving major financial woes of merchants lies in incorporating data to ensure financial inclusivity. Hybrid finance models embedded in fintech firms, NBFCs and traditional banks are set to ease the collection, verification and processing of vital data to generate a complete picture of a person’s credit attributes such as creditworthiness, delinquent tendencies and risk appetite.

Concerns over privacy have reared their heads in the discussion about the subsequent outcomes of a layout such as this but RBI licensed AAs have promised to give total control over personal data to the customers. These financial entities are aimed at compiling diverse customer data on a single platform, granting access to third parties with customer consent.

The primary benefits of AAs are:

The biggest scope for AAs lies in the possibility of transforming the lending scenario for SMEs and MSMEs by accumulating alternative financial data such as tax returns, online spending patterns, bank statements and bill repayment trends to assemble a feasible substitute for traditional credit scores. This can help in a shift to cash-flow based lending as opposed to asset-based lending, to counter the inability of small businesses to provide collaterals.

Sachet sized loans based on the cash flow of businesses will make way for higher loan repayment rates while boosting the business simultaneously. With successful integration of AAs into the lending ecosphere, the percentage of businesses having access to formal credit will certainly exceed the 10% it is currently positioned at.

Despite the rosy picture the AA framework paints, there are some problems which persist:

 

Keeping all these pointers in mind, Account Aggregators can democratize and formalize credit to everyone facing obstacles in availing loans or other financial services and products due to weak credit scores. A strengthened, small business powered economy lies on the other side of the rainbow for India, boosted by diverse data and financially inclusive transformative models!

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