The financial sector is the first space for the aggregator idea to be tried out
Almost to the day, it was 10 years ago that Nandan Nilekani outlined how he would solve a problem in the retail finance space. I was consulting with the ministry of finance for a year and was assisting the Swarup committee. We were trying to solve the problem of mis-selling, consumer protection and financial literacy. On the committee’s invitation, Nilekani had come across to the chairman’s office in Vasant Kunj, New Delhi. He instantly picked a white board marker and drew a screen on the board. This was the one screen that would reflect a person’s entire financial life—all the products, taxes, savings, loans—everything was in tiny boxes in that screen. A one-screen image would give the investor a much better handle of various products and what they are doing for his financial life. But at that time, the fragmented regulatory system, lack of adequate machine-readable disclosure and the inability of entities like financial planners and wealth managers to access this information, made that screen look like science fiction. Ten years later, that idea is almost ready to roll out. But the idea has got deeper and wider, and is attempting to solve a much bigger problem.
The problem is of data ownership and its use. India is a poor country whose citizens are data rich and, therefore, the western solutions of a data protection framework are necessary, but insufficient. This data is better used for individual empowerment, based on consent and secure movement of data. India is the first country in the world to attempt putting in place a system to make data into something that will empower individuals rather than just stop at protection. Suppose I want my financial planning firm to build me a plan today. I will have to email all my bank statements, my insurance policy details, my mutual funds, my real estate holdings, my small savings deposits, all my loan details, my tax statements. Most of these are not in a machine-readable format—these will be PDFs or excel sheets with frozen cells making it useless for analytics. Not only is the information clunky, it is also excessive and perpetual—I cannot scrub off the data once mailed to my planner if I fall out with him.
If this is an elite first-world problem that needs solving, imagine an auto driver who needs a home loan. If the credit-giving agency could have access to his bank statements, his mobile phone payment history, his health record and his skill details, the loan could become possible faster and at a lower cost—saving on both time and money. Or if a small businessman needs working capital, he can use his GST (goods and services tax) receipts as evidence of his revenues, his bank statements to show his capacity to pay. Again, a secure, low-cost, quick use of this data by the credit agency would make the loan viable more efficiently. Nothing then stops a daily wager from getting small drops of credit faster and cheaper using the same data network.
The current market failure between data users and data providers is sought to be solved through setting up of what are called “data fiduciaries". The manifest form of these fiduciaries are entities called account aggregators. Think of them as a switch that allow the data to flow between the users of data (financial planner, creditors) and the providers of data (banks, insurance firms, mutual funds), after getting consent from the owner of data (you and I). To prevent the account aggregators from scrubbing your data and selling it, the data will be encrypted by the provider and will be unencrypted at the user’s end; the aggregator is just a switch. It will earn by either charging you and me or the users. Most likely, the user will pay and embed this cost in its service charge to you.
To ensure that the data is safe, a protection protocol aims to tightly define consent. Today when we consent to data sharing when we download an app, we hand over huge amounts of personal data, sometimes forever. Nobody reads the 10 pages of the consent form. Consent in this framework is going to be tightly defined as to what is going to be shared, with whom, for how long. It will be portable and revocable.
In a rare event, four financial sector regulators have come together to make the account aggregator idea possible. With the Reserve Bank of India (RBI) as the lead regulator, the Securities and Exchange Board of India (Sebi), the Insurance Regulatory and Development Authority of India (Irdai) and the Pension Fund Regulatory and Development Authority (PFRDA) are a part of this plan to make a common platform possible. One of the biggest problems in retail finance has been the different standards between regulators and the inability to see machine-readable data in one place. Now seven non-banking finance companies (NBFCs) have got an in-principle go-ahead from RBI and they await their licences. Meanwhile, a not-for-profit entity called Sahamati (https://sahamati.org.in/), led by tech entrepreneur B.G. Mahesh, is working with both the users and providers of data. Sahamati sees itself as an eventual self-regulatory organization (SRO) that will self-regulate the aggregators. It needs 80% of the data providers in each industry to on-board the system for it to be viable. I cannot but wonder if the life insurance industry will fully on-board this, given the current market share numbers.
While the financial sector is the first space for the aggregator idea to be tried out, other sectors such as telecom, healthcare and skills are also in the pipeline. The same aggregators will then become the switch between telecom, healthcare, educational, professional institutions, workplaces and the users of the data. For example, a life insurance policy needs details of income tax returns, income statements, health records and family details. In its mature form, the account aggregator could provide this data to the insurance company, after getting consent from the person seeking insurance, in no time.
India is trying out something that no other country has done. There will be mistakes made and lessons learnt. There will be plenty of naysayers who will worry about getting it just right. But perfect is always the enemy of good, and just as the UPI infrastructure has got India to the cutting edge of payments in the world, the data fiduciary model can do so for a person’s financial life.