All Data in One Place
The advent of digitalization has been a boon for the fintech space. The potential ability to bring data together from myriad sources under one roof for effective usage has taken financial services a notch higher in their game. Consumers’ expectations are changing with time. Agility, security & convenience are the top priorities when it comes to meeting consumer expectations which is what has led to the emergence of account aggregation.
Account aggregation has successfully brought data from all sources in one place. The data collection, collation, and sharing are enabled through open application programming interface (API) connections, meeting consumer expectations like never before!
Account aggregation providers have an advantage in the financial sector since they possess the key to all consumer data. They can add value in the following ways:
- Forming alliances with both incumbent and FinTech players
- Supplying consumers with value-added goods and services
- Using customer data and insights to their advantage
Furthermore, the network effect drives account aggregation apps: the more integrations they provide, the more attractive they become to new partners and end customers.
Given that the majority of Intermarket competition occurs at the ecosystem level, some organizations may find that embracing the position of an aggregator is a successful strategy.
Why is it Implemented?
AA looks sustainable because it is addressing most of the data privacy and security issues. Account aggregation can be done in a variety of ways. It can be restricted to a single institution or a specific account type. It can also be highly detailed, containing information on a wide range of accounts, including investments, pensions, credit cards, and mortgages.
What do consumers get out of this?
The key advantage of account aggregation is that it allows people to see all of their accounts in one place. This is especially useful for folks who have their money distributed across multiple accounts.
So, when someone has a salary account with bank 1, an investment account with bank 2, and a mortgage account with bank 3, they can obtain a complete picture of their finances with just one App. Otherwise, they’d have to log into three different banks and keep track of how much money was in each.
What do businesses get out of this?
Businesses can reap the same benefits as consumers by utilizing services that aggregate company accounts. If their funds are split over multiple accounts, this is an easy way to acquire a better financial picture. Businesses, on the other hand, are more likely to get value through account aggregation for their consumers.
Providing account aggregation is a simple way to keep customers’ attention and engage them.
Let’s use the same scenario as before. If bank 2 allows customers to check all of their accounts, including those with banks 1 and 3, the customer is likely to use bank 2’s app more frequently than the others.
How will Things Change in the Financial Ecosystem Post Account Aggregation?
The focus will shift away from just aggregating accounts and toward enabling comprehensive automation in credit lending, investment advising, personal financial management, and other areas, to achieve financial inclusion. By transitioning from asset-backed to cash-flow-based lending, AAs can become agents of financial inclusion.
As a result, it may be able to help individuals and small businesses that were previously unserved or underserved by financial services. AA solutions can also bring about a paradigm shift not only in credit assessment and lending but also in financial planning and asset management.
Furthermore, account aggregation solutions’ underlying design is industry-agnostic, and the same architecture might be used in the telecom, health, and education sectors in the future. As account aggregation will change the fintech space, here’s what we can expect:
- Streamline Financial Data & Information
While the AA architecture is deployed, it will aid in the standardization of financial data among fintech businesses. After all, data cannot be easily exchanged if it is stored in different formats by different organizations.
It will be easier to transmit information and construct underwriting algorithms or other monitoring mechanisms if data is shared and stored in the same framework.
- Security & Privacy
The Account Aggregator framework features strict data privacy, security, and access policies. Any organization that participates in AAs must adhere to these principles to share data securely.
As a result, AAs will encourage businesses to adhere to industry-wide security and privacy best practices. Data masking, source encryption, and, most crucially, explicit authorization from a user before their data is shared or accessed are just a few examples.
Organizations will begin to investigate how to incorporate the AA architecture and make their systems compatible as Account Aggregators become more popular.
If you’re a lender, for example, you might consider incorporating transaction-based lending, as AAs will make it simple to obtain a user’s transaction data.
- Easy Onboarding Procedures
Receiving and verifying someone’s authentic bank statements will be a breeze using AAs. This reduces the time and resources required to onboard a new customer and validates their financial details.
This will result in the emergence of new fintech sub-sectors — Lending, wealth management, personal finance management, Robo-advisory (automated financial guidance), and even accountancy are examples of these services.
AA technology is going to be a breakthrough but it has some limitations which can be solved through a smart tech layer. AA can only allow FIU to collect bank statements and other data points. But how to read and use them is not their forte. Hence, authorized Technology Service Providers (TSP) such as Pirimid offer additional AI ML tech layers for FIUs to generate actionable insights from the data collected under AA.
Here is a list of additional tech layers Pirimid offers to FIUs –
For Lenders: Account Aggregator based digital bank statements and other financial data will eliminate the need for paper trails, processing time, and document verification for lenders. The technology helps assess the financial profile of the applicant to help in underwritings such as potential risk factors, income validation, and loan product to be offered (duration, interest, and amount of loan to be offered).
But to reap the full benefit lenders need some reliable solutions to process bank statement data and plug the same into their underwriting model. A completely digital process will help lenders issue personalized credit offering which is best suited for each customer. The value proposition is not just limited to underwriting, lenders can schedule frequent data flow to develop an Early Warning System (EWS) to predict defaults in advance.
For Wealth Managers: When you first approached a financial advisor, onboarding took a long time because you had to keep your mutual fund account statements, insurance policy documentation, bank account details, and so on ready. However, your financial advisor now has access to all your financial data without you having to gather all of the necessary documentation.
By using an account aggregator, clients can share their entire financial portfolio with a wealth manager, which can be leveraged to recommend a personalized wealth management strategy.
AA is great but to access financial data in a real-time but FIUs need to have the additional technical capability to use and understand the data points. Because how you read the data is more important to create a competitive edge.