Financials: Account Aggregator: Ready to take off!

15 Mar 2024 , 11:56 AM

Analysts of IIFL Capital Services interacted with B G Mahesh, CEO of Sahamati (an industry body facilitating Account Aggregator (AA) ecosystem in India), to understand the progress and potential of AA. He is excited with the progress thus far and believes that the AA eco-system is at an inflection point and would see an exponential volume growth hereon (150x by 2027). Increasing financial data (stocks, MF, pension, GST filing, etc.) makes the AA case more compelling for FIUs as well adds new use-cases (wealth managers, broking, etc.). AA is expected to accelerate the financial inclusion and formalisation of credit in the economy. The early adopters (digital NBFCs) are already seeing benefits with regard to higher conversions (targeting NTC customers) and improved profitability (lower processing cost + lower GNPAs due to zero fraud risk). Sahamati expects that the Banking segment (Private + PSUs) could see additional profits of Rs6trn (through new business + cost savings) over the next five years. Within AA licensees – One Money (partly owned by KFin), CAMS, Anumati (owned by Perfios), NADL and Finvu are key players. Analysts of IIFL Capital Services believe, AA on standalone basis is unlikely to create huge value; but combined with TSP, analytical offerings could be a key earnings driver for AA licensees.

With AA ecosystem expansion in 2023; increasing adoption would drive volume growth in 2024

Launched in August-2021, Account Aggregator has transformed the manner in which vital financial information is exchanged between financial institutions. Secured, real time and consent based sharing of data through digital means has facilitated growing acceptance of AA among market participants.

Over 2023, AA ecosystem has expanded significantly – financial institutions registered as FIPs (Financial Institution Providers) has grown >4x from 31 to 147; while FIUs have grown >2x from 142 to +380. Notably, incremental participation has come from crosssectorial entities regulated by four different financial regulators in India – SEBI (AMCs via the RTAs, and Depositories), IRDAI (health insurers, life insurers, and general insurers), PFRDA (Pensions data through CRA) and RBI (banks, NBFCs, etc.). In addition, the Goods and Services Tax Network (GSTN) also went live in August 2023. This has enabled AA to share holistic financial information digitally through a single medium; opening up tremendous opportunities for several innovative use-cases.

Mr. B.G. Mahesh highlighted that currently, only 15 types of financial information data (incl. GST) are live in Phase-I and he expects several additional data points such as CBDT, EPFO, etc. to be incorporated in near term. Further, implementation of DPDP Act 2023 (Digital Personal Data Protection Act) entails every FIP to provide access to the data owner, so as to share his personal data digitally; which will likely see new data types such as health, telecom, property records, etc., become digitally accessible.

With the continuous increase in the AA ecosystem, number of accounts linked and successful consents have also grown. Analysts of IIFL Capital Services note in FY24 – the number of accounts linked with the AA network rose by 13x YoY to 67mn. Despite such strong growth, only 3.5% of the 1.94bn accounts that can avail AA facility are linked, implying long growth runway. In terms of successful consents (data pulls), volumes grew by 11x YoY to 59mn in FY24. With the increasing ecosystem and use-cases, coupled with rising adoption of the AA framework and falling failure rates of data pulls, Sahamati estimates the annual pulls to go up to 9.5bn in 2027 (vs 60mn in FY24; Cagr of 255%). The expectation may look unreal, but if one notes the growth in UPI transactions (204% Cagr over FY17-24), it may not be impossible.