The massive digital disruption that is happening in all spheres is changing the way we work and do business. Companies that are well positioned to take advantage of the shift to remote work, digital payments and online shopping are seeing rapid revenue growth, often at the expense of slower and less agile incumbents. The ubiquity of digital payments, thanks to a series of reforms like UPI, is surely a testament to how far the financial ecosystem has come; therefore, it is not surprising that 71% of all payment transactions in India are projected to be digital by 2025 (Source: ACI Worldwide).
While the financial services sector has experienced the most disruption, it is likely to be amplified with the Account Aggregator (AA) ecosystem. AA is an initiative of RBI that is intended to give consumers the power to use their financial information for their benefit at the click of a button. Once fully functional, all aspects of financial data, investments, insurance policies, loans, bank details, etc. of a user would be just a glance away.
While lending fintechs have been quick to adopt AA to better serve their users with faster and lucratively priced loan products, the investment and personal finance space will also see increased adoption over time. AA has many use cases in investing and personal finance planning.
More use cases will emerge over time, but for now, let’s look at some of the more important ones.
Effective Tracking and Monitoring of Investments
If you can’t measure it, you can’t improve it – Peter Drucker
The investments of most retail investors are scattered all over the place: different MFDs, banks, brokers and insurance companies. Most investors struggle to get a single view of all their investments on one platform. Unfortunately the established platforms that allow this also have no choice but to have users fill in their details manually which is a very cumbersome process or scrape mutual fund/NSDL statements which again are not exhaustive and not totally accurate either. .
The AA ecosystem alleviates all these concerns by allowing traditional and online advisors to let their users access all investments on one platform. In addition, advisors can process data and obtain actionable insights from investors’ portfolios with your explicit consent.
Not only will this allow investors to monitor their holdings in real time, but it will also allow them to take faster and smarter action on their investments, potentially leading to better returns and avoiding costly mistakes.
Tracking investments with a unique identifier (such as a mobile phone number) would ensure that investors do not inadvertently lose or forget multiple investments made years earlier. According to ET Wealth, unclaimed investments in mutual funds, stocks, insurance companies, etc. they are hitting record highs (>₹82,000 cr.) and it would be a shame to see investors lose or forget their little pots of gold that they accumulated over many years. years, especially during times of your needs or those of your dependents when the user is not present.
A large portion of unclaimed investments is attributable to:
- Dependents who are unaware of the investments after the investor’s death and
- The lack of nomination leads to a cumbersome and sometimes endless process of recouping those investments.
The AA ecosystem provides an excellent platform for the implementation of the Unified Candidature Registry (A R). A UNR is a consolidated record of an investor’s nomination details (nominees) across all of their investments in various asset classes.
Personal finance/wealth management platforms can be brought into this ecosystem to help ensure their users’ nominations are in place and alert/service investments that are not nominated, all under one roof. This will lead to massive benefits for the entire investor ecosystem, as families will not have to run from one pillar to another to claim their legitimate investments in times of need and pain.
Fewer investment leaks
Every year, banks earn thousands of crores of rupees from funds sitting in low-yielding checking and savings accounts. A large part of these deposits are simply there due to lack of information or lack of proper financial planning.
The account aggregator guidelines will enable fintech companies in the personal finance space to effectively plan and guide depositors to ensure that any money not required to be parked in such accounts can be invested with better returns. Needless to say, this is a double-edged sword that can lead to wealth erosion if investors take disproportionate risks for higher returns, and therefore having the right advisor is crucial for the investor.
the tax return
Providing all transactions and financial statements to one’s CA from all accounts is an annual ritual closer to tax filing deadlines. Instead, fintech players like investment advisors can simply use the AA ecosystem to prepare and display all the relevant details, including capital gains, income, etc., required for tax filing. The background work of all the calculations and the preparation of the declarations can be done practically with a few clicks.
These are just a few use cases of account aggregator regulations and possibly the tip of the iceberg. In the coming years, as the ecosystem becomes more robust, we should see a number of innovations that will make personal finance and investing more exciting and rewarding for everyone.
For a long time, accessing our financial information, whether to file taxes or just to find out what’s going on, has never been a pleasant experience with bits of data scattered among countless financial institutions. Information that should ideally be just a glance away takes hours of reviewing accounts and statements. This drawback is exactly what the account aggregator ecosystem aims to eliminate.
Although the ecosystem is still nascent, few large banks have yet joined and it is only a matter of time before adoption becomes the norm.
The opinions expressed above are those of the author.
END OF ARTICLE