Sebi’s endorsement of the AA Framework—another watershed moment?

Last month, Securities and Exchange Board of India (Sebi) officially joined the Account Aggregator (AA) framework, further strengthening the consent-based financial data sharing infrastructure. Under this option, customers can give consent to allow their data residing with a financial information provider (FIP; depositories and asset management companies in this case), to be shared with a financial information user (FIU; banks, NBFCs, wealth managers) for a specific business case—like, getting a loan or investment advice—through an RBI-regulated AA entity, digitally and in real time.

For now, Sebi’s circular points to participation of depositories and asset management companies as FIPs. This announcement continues to build the growing tribe of 150 plus financial institutions that have started to share consent-based customer’s financial information with each other. Unequivocally, the biggest winner is the consumer, because it only reinforces their power and control, towards choice of sharing their information to a bank where they have applied for a loan, or to a financial advisor for , or for consolidating all financial and investment statements for tax-filing purposes. Note that a key tenet of the AA architecture is that it is consent-based where users can manage exactly what they want to share, or not, and what duration it can be accessed for. Once shared, all data passed through the AA from the FIP to the FIU is encrypted. The AA will purely function as an intermediary pass-through layer between a provider and a consumer and will never be able to read into the data.

Lenders, who continue to seek alternate data sources for borrower underwriting, now get a new leg to innovate. For over a 100 million demat accounts and over 100 million of mutual fund folios, the lenders ecosystem gains richer context into patterns that may not otherwise be discoverable from ‘usual suspect’ metrics such as income statements, cash flow, savings—thereby bringing about a new dimension to the loan worthiness algorithm, and enabling for new innovation and competitive dynamics, again all with the consumer’s best interest in mind.

A significant challenge for wealth managers today is lack of transparency into their client’s portfolio, thereby making the job for advisors quite difficult. By widening the aperture of visibility into the realm of MFs, bonds, stocks and other securities, wealth management firms will be able to develop new models, practices and insights. As a result, one significant opportunity could be in the ‘mid-tier’ professionals: people who aren’t interested enough to gain a dedicated relationship manager because they aren’t quite HNIs, but interested enough to ‘make their money work for them’—and there lies the opportunity for AI infused methodologies to be an automated, virtual advisor.

An open question, interestingly enough, is what’s in it for the many MFs and brokerage players and why should they join the ecosystem as an FIP? Could it be for lead generation purposes to gain new customers, or improving customer service? For example, the MF will share information, but for their customers, with consent. They could also access information from other MFs, and security entities, thereby enriching their ability to best suggest more contextual approaches to investing – for example the desire to comply with sustainable investments only, or to suggest specific themes and so on. Also, such information could enable for business development campaigns targeted at new customers and drive mutual fund penetration.

In the parallel banking world, it took a while for banks to get comfortable with the idea of perceived asymmetry of the value exchange (i.e., incumbents with large amounts of customer data hesitating to join whereas a new bank striving to widen account base would be eager to). Ultimately, the ‘benefits of joining’ vs. ‘costs of not joining’ will over time tilt in favour for the former.

More than anything else, Sebi’s support to the framework is a strong validation of the AA construct, often called the next UPI moment for India. It will create serious ripple effects towards furthering the financial inclusion imperative, encouraging more regulators, financial and non-financial, to look at the value of participating in consent-based data democratization – spurring innovation, competition and directly benefiting customers to prosper by regulated and secured data sharing.

Mayank Jha is managing director and partner in BCG’s Financial Services practice and Sumit Sharma is Advisor with BCG and an expert on digital and data architecture. Views are personal.

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