Importance of account aggregators in financial planning

ADVERTISEMENT

The massive digital disruption happening in every sphere is changing the way we work and do business. Companies that are well-positioned to leverage the shift towards remote working, digital payments, and online shopping are witnessing their top-lines rise rapidly, often at the expense of slower and less-agile incumbents. The ubiquitousness of digital payments, thanks to a slew of reforms like UPI, is certainly a testimony to how far the financial ecosystem has come; Hence it is no surprise that 71% of all payment transactions in India are projected to be digital by 2025 (Source: ACI Worldwide).

While the financial services sector has seen the most disruptions, the same is likely to be amplified with the Account Aggregator (AA) ecosystem. AA is an RBI initiative that intends to grant consumers the power to use their financial information for their benefit with just a click of a button. Once fully functional, all aspects of a user’s financial data, investments, insurance policies, loans, bank details etc. would be just a glance away.

While lending fin-techs have been quick to adopt AA to better serve their users with faster and lucratively priced loan products, the personal finance and investment space is also going to see its adoption increase over time. AA has lots of use cases in personal-finance planning and investments.

With time more use cases will emerge but for now, let’s look at some of the major ones.

Effective Tracking and Monitoring of Investments

If you can’t measure it, you can’t improve it – Peter Drucker

Investments of most retail investors are scattered all over the place – different MFDs, banks to brokers and insurance companies. Most investors struggle to get a single view of all their investments under one platform. The incumbent platforms that do allow this also, unfortunately, don’t have any choice but to get users to fill in their data manually which is a highly cumbersome process or scrape mutual fund / NSDL statements which are again not exhaustive and also not totally accurate .

The AA ecosystem eases all these concerns by allowing traditional and online advisors alike to let their users access all investments in one platform. Additionally, advisors can process the data and derive actionable insights from investors’ portfolios with their explicit consent.

This will not only enable investors to monitor their holdings in real-time but also empowers them to take quicker and smarter actions on their investments, leading to potentially better returns and avoiding costly mistakes.

Unclaimed / Forgotten Investments

Tracking investments with a unique identifier (like a mobile number) would ensure that investors do not miss or inadvertently forget sundry investments made years before. As per ET Wealth, the unclaimed investments in mutual funds, equities, insurance companies etc is reaching record highs (> ₹ 82,000 cr.) and it would be a shame to see investors lose or forget their little pots of gold that were accumulated over many years especially during times of their or their dependents’ needs when the user is not around.

A large part of the unclaimed investments is attributable to either:

  • Dependents not being aware of the investments post the investor’s demise and
  • Lack of nomination leads to a cumbersome and at times endless process of retrieving those investments back

The AA ecosystem provides an excellent platform for the implementation of the Unified Nominations Register (A R). A UNR is a consolidated register of an investor’s nomination details (nominees) across all his/her investments across various asset classes.

Personal-finance / Wealth management platforms can hop on to this ecosystem to help ensure that their users’ nominations are in place and alert/attend to investments that aren’t nominated, all under one single roof. This will lead to massive benefits for the entire investor ecosystem with families not having to run from pillar to post for claiming their rightful investments in times of need and grief.

Lower Leaks in Investments

Every year thousands of crores of rupees are earned by banks on funds sitting in low-yielding current and savings accounts. A large part of these deposits is purely lying there due to either lack of information or lack of proper financial planning.

Account Aggregator guidelines will allow fintech companies in the personal finance space to effectively plan and guide depositors to ensure that any monies not needed 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 to earn higher returns and hence having the right advisor is crucial for the investor.

Tax Filing

Providing all financial transactions and statements to one’s CA from across accounts is an annual ritual closer to the tax filing deadlines. Instead, fintech players like investment advisors can simply use AA ecosystem to prepare and show all relevant details including capital gains, income etc. needed for filing taxes. The background work of all calculations and preparation of the returns can be done practically at the clicks of a few buttons.

These are but just a few use cases of the Account Aggregator regulations and are possibly the tip of the iceberg. Over the next few years, as the ecosystem becomes more robust, we should witness a host of innovations that will make investing and personal finance more exciting and rewarding for one and all.

For the longest time, accessing our financial information, whether for filing taxes or just to know what’s going on, has never been a pleasant experience with bits and pieces of data dispersed amongst countless financial institutions. Information that should ideally be just a glance away takes hours of scouring accounts and statements. This inconvenience is exactly what the Account Aggregator ecosystem intends to get rid of.

Though the ecosystem is still nascent, few large banks have already been onboarded and it’s just a matter of time before the adoption becomes the norm.



LinkedIn


Disclaimer

Views expressed above are the author’s own.



END OF ARTICLE



.