India Launches Its UPI For The Lending Space, The Account Aggregator Framework

India had disrupted digital payments in the country with a new technology in UPI. It now plans to do an encore in the lending space.

India has officially rolled out the Account Aggregator framework, which will enable people’s financial data to be stored at one place, and then securely shared for services like availing of loans and other financial requirements. Eight banks including HDFC, Kotak, ICICI, Axis, SBI, IndusInd, IDFC, and Federal Bank have joined the network, and the system is now operational. Industry experts have been estimating that this technological framework could transform and remove friction from lending, much like how UPI had made payments between banks seamless.

The Account Aggregator framework will allow financial entities, with the consent of customers, to directly share their data with other financial entities. Currently getting a loan can be a tedious process — people have several bank accounts, and they need to take print outs of bank statements, their IT returns, their insurance, and other documents to avail of a loan. With the Account Aggregator framework, customers would only need to give their consent to their data being shared, and it will automatically be shared with the entity giving out the loan.

The benefits of such a system are enormous — not only will it eliminate the effort of logging into several different sites, accessing data, taking printouts, and then taking them to different banks, it will also securely and digitally transfer data between financial entities. The system is expected to save time for loan disbursals, and because data will directly go from one financial entity to another, also help prevent fraud. The transmission of data will also be more secure — while it’s possible for printouts to get into the wrong hands, data shared through the Account Aggregator framework will be safe and encrypted.

This is similar to what UPI had done with payments — by connecting all banks through a common interface, UPI had enabled payments to be seamlessly sent from one bank to another. The Account Aggregator (AA) framework will similarly allow customers’ financial data to sent from one bank to another.

And apart from making availing of loans easy, the AA framework could also help provide credit in cases where it previously wasn’t possible to avail of it. A borrower might not have a regular salary, but he could theoretically consent his phone provider to share his data with the bank, showing that he regularly pays his phone bills, and could thus be considered for a loan. The framework could help build new data points that could create entirely new models for lending.

For now, 8 major banks are live on the initiative, and PhonePe and some other financial institutions have also received approval to be Account Aggregators, which means that it will also be able to share and access data within this framework. India’s fintech space is already booming, and the addition of verifiable and easily accessible data could lead to ever-more innovation in the space.

But crucially, the Account Aggregator framework shows how India’s digital infrastructure is now amongst the best in the world. The UPI framework has won numerous awards and is listed amongst the best payments systems globally; India’s CoWin app has received interest from over 50 countries for its use, and the Acccount Aggregator framework, first conceived in 2016, could help transform lending. For decades, India’s governments were thought to be behind the curve when it came to technology, but it’s now growing increasingly clear that India’s tech stack is amongst the the most robust — and the most innovative — in the world.