Sahamati
Sahamati brings together various aggregators that enable individuals and small businesses to share the financial data with a third party, through digital means. It basically acts as a common platform for storing financial data in a single place. It is currently being used in the financial sector and it will be used in healthcare, telecom, and other sectors as well in the future.
What is Sahamati
Sahamati (DigiSahamati Foundation) is a private, not-for-profit, organisation under Section 8 of the Companies Act of India. It is a member-driven alliance that was formed to strengthen and promote the Account Aggregator ecosystem in India.
It brings organisations and people together from different backgrounds like law, technology, and finance to set and achieve goals for India’s Account Aggregator network and Data Empowerment and Protection Architecture. This helps users have access to innovative products and services and also have better control over their data.
This framework allows individuals to gather and share financial data stored with various intermediaries. This way, there is no need to collect information physically from different intermediaries’ websites. With the help of an aggregator, the users can get the loan processed within a few minutes. This will be very useful while enlisting a financial adviser’s service who wants a bird eye view of an individual’s financial history. This framework will introduce minimal documentation and also considerably bring down the turnaround time.
However, in order for this to be accomplished, the platform needs to be used by all providers of financial services. Currently, participation is not required for all entities. The user’s data might not be completely stored if the service provider is not registered.
Why Sahamati
Sahamati provides a lot of benefits to both the general public as well as the entities that register with Sahamati. Some of the benefit are listed below:
● Easy Access to Information
A customer must provide the lender with a number of documents if they wish to apply for a small company or personal loan right now. The time it takes to secure a loan today is impacted by this laborious and tedious process. Account Aggregator enables businesses to rapidly and affordably access secure, tamper-proof data and expedite the loan application process, enabling customers to obtain loans.
● Easy Loan Availability
The AA framework may help to better address urgent financial requirements by providing modest loans for MSMEs and reasonably priced microinsurance with greater data availability. A wide range of options are made available by the AA system. For instance, 'information collateral'—details on future MSME income from government systems like GST or GeM—can be used to get a small formal loan through safe data sharing via AA, whereas physical collateral is generally required for an MSME loan.
● Easy Accessibility
In the future, it will be possible to contact many Small and Medium Enterprises (SMEs) without using physical branches, which will change the way credit is accessed. Adoption of an open banking ecosystem would aid India in opening up its sizable untapped financial services sector. Since all financial information is collected in one location, the Account Aggregator system has the potential to significantly increase the efficiency and cost-effectiveness of lending and wealth management.
Data Privacy in Sahamati
The goal of Sahamati is to empower people by providing them more choice over how their data is used. The user can provide or withhold permission to share data from any accounts with any intermediary when they register for an account with the aggregator. The decision over how much of the user’s data can be shared will remain in their hands. If the user has four bank accounts, for instance, then the user can decide to allow access to just one or two of them. Additionally, the user will have a choice as to how long the service provider may access the data.
Nowadays, data sharing is quite common. Various entities and businesses collect data for different reasons but there is a lack of accountability when it comes to the usage of this collected data. This is where account aggregator ecosystems come into play. They are intermediaries that act as data access fiduciaries.
The Account Aggregator Ecosystem
The Account Aggregator (AA) ecosystem is a framework for consent-based financial data sharing that would let people and small businesses "access, control, and share personal data" with other organisations.
The architecture of AA is based on the Draft Data Empowerment and Protection Architecture (DEPA) framework, which was made public by NITI Aayog. By giving lakhs of customers better access to and control over their financial records and extending the potential client base for lenders and fintech companies, this financial data-sharing system, coupled with facilities like UPI, has the potential to revolutionise the lending and investments realm.
Account Aggregator Ecosystem Participants
The three crucial components of the financial data sharing architecture are as follows:
Financial Information Providers (FIP): A data fiduciary who oversees customer data is known as a FIP. A bank, Non-bank financial institution (NBFI), mutual fund repository, insurance repository, and pension fund repository are just a few examples.
Financial Information Users (FIU): An FIU uses the information from a FIP to produce a range of services for the user. In order to establish whether a borrower is qualified for a loan, a lending institution must obtain access to the borrower's information. Banks act both as an FIU and FIP.
Account Aggregator (AA): An Account Aggregator (AA) helps a person securely access and share information from one financial institution to any other regulated financial institution in the AA network using digital technology. AAs are a type of organisation governed by the RBI. With the primary obligation of allowing the transfer of user financial data with their express consent, the Reserve Bank of India (RBI) recognised AA as a new type of NBFC (Non-Banking Financial Companies) in 2016.
Account Aggregator Ecosystem Applications
In the AA ecosystem, Financial Information Users (FIUs) have a variety of use cases at their disposal. When incorporated into the Account Aggregator ecosystem, the following applications can have a significant impact.
● Financial Management of Lending
Today, a borrower gives their banking information and other information to the lender either in PDF documents or paper copies. The borrower must spend time gathering the data to be supplied, and the lender must process the data using a screen scraping approach, making this procedure less than optimal. Additionally, such records cannot be altered. Banks and NBFCs should take advantage of the enormous potential presented by AA to accelerate safe lending.
● AA removes obstacles to quick data access, enabling them to process loan applications more quickly.
● The data is signed digitally by the Financial Information Provider (FIP), such as the borrower's bank, and can be received in real-time by lenders utilising Account Aggregators.
● Lenders can provide their clients with more individualised and unique lending options.
● The most crucial aspect of AA is loan monitoring. The lenders can now keep an eye on loan accounts after disbursement in order to take action quickly and reduce loan loss provisions.
Cash Flow Lending
Over 30 million people in India have substantial credit bureau files, meaning that there is sufficient information to generate a credit score.
Lenders can reach unexplored markets thanks to AAs: In India, just 8% of MSMEs have access to official loans. Lending based on the borrower's company's cash flow represents a significant new possibility in unsecured lending. With the help of the AA framework and the future Public Credit Registry (PCR), lenders will be able to give small loans based on the cash flow of the company.
● Wealth Management
In India, wealth managers rely heavily on their clients' regular data submissions. The client has the option to give their credentials to the wealth manager, which eliminates their concern about sharing their data, but this is not the proper way to do it.
An Account Aggregator may receive ongoing consent from a data principal (a wealth management's customer) to share data from particular FIPs with the wealth manager. This approach offers various benefits.
The Data Principal is not required to divulge the credentials for the FIP (login, password). Data sharing by the wealth manager is not reliant on the client. The wealth manager receives data in digital form, which can be fed to the wealth manager’s platform directly which will be able to generate actionable reports.
The size of the market of wealth management in India is very small. Account Aggregators can help with growing the market size as wealth managers will be able to give more time on getting clients while the technology will help them in their everyday operations.
● Apps for Managing Personal Finances
The utilisation of apps that cater to Personal finance management (PFM) is poor in India. Several PFM apps in India use one of the following techniques to access the user’s bank account statements:
● PDF file submission
● Providing login information through app
If the user values privacy, neither of the aforementioned approaches is advisable. In their lifetime, people make roughly 200 financial decisions, including selecting a bank to start a savings account with, getting a mortgage, getting a personal loan, selling mutual funds, and buying insurance policies. Using their own data, users of good PFM apps can make smarter financial decisions. PFM apps must provide reports that may be used, in addition to presenting the data graphically.
● Robo-Advisory
Robo-advisors are financial advisors that provide financial advice online with little to no human intervention. Robo-advisory apps are still in their beginning stages in India. Gen-Z and millennials favour robo advisory-style answers. Robo-advisory uses a lot of technology, and if their algorithms are great and updated frequently, one should expect good actionable reports.
Many people in India now use robo-advisory apps to invest in MFs. These apps could help the user make considerably better decisions if they had real-time access to the user’s financial information. The following is a list of a few features of robo advising apps.
● Recommendations for rebalancing and portfolio assessment
● Investment analytics
● Switch from regular plan to direct mutual funds
Data collection is a fairly laborious operation under the current system; there may be a lot of steps involved in acquiring, extracting, and processing the data. In the AA universe, data fiduciaries will provide digital information to robo-advisors directly.
● Accounts Reconciliation
About 63 million micro, small and medium enterprises exist in India. They generate almost 30% of our GDP, according to the MSME committee report. The manufacturing sector employs the majority of MSMEs. MSMEs make use of financial accounting software like Quickbooks, Tally, etc. The accountant or owner inputs all bank transactions and invoices into the accounting software.
That being said, with such widespread data exchange today, the biggest worry will be whether the data will be secure and not compromised. According to experts, the platform would be totally secure. Account Aggregators assert that they are "data blind," meaning that they only enable the transfer of client data-not its storage. They will not be able to access the transmitted information and are not permitted to sell the data either. Additionally, the transferred data will be completely encrypted.
Sahamati believes that every individual should have access and control over their data, which can play a strong role in transforming people’s data into economic wealth. With this mission in mind, Sahamati ensures that the data is stored safely and can be accessed by financial institutions with ease if needed.
