Account Aggregator in Wealth Management

The article first appeared in The Hindu Business Line on 1 December 2023

The Indian consumer behaviour has shifted rapidly from physical to digital access of financial services and products. In such a scenario, managing personal finances and investments has become increasingly simple yet complex. Individuals often find themselves juggling multiple financial accounts, ranging from bank & neo bank accounts, credit cards to investment portfolios and insurance policies. The need to consolidate and streamline these diverse financial assets to benefit users has paved the way for a revolutionary tool in wealth management – Account Aggregators (AAs). 

At its core, an Account Aggregator is a technology-driven platform that allows individuals to view and manage their financial information from various sources in a single location. This consolidation not only offers a comprehensive overview of one’s financial health but also facilitates efficient decision-making in wealth management. On user consent, AAs act as intermediaries between Financial Information Users (FIU) and Financial Information Providers (FIP) providing a seamless and secure way to access, share financial data and create new use cases with financial data.

The scope of Account Aggregators in the realm of wealth management is vast and multi-dimensional. Here are some key areas where AAs have the potential to transform the landscape for individuals:

• Holistic financial insights: AAs empower individuals with a holistic view of their financial footprint across services and products. They can consolidate data from different sources, such as bank/NBFC accounts, investment portfolios, mutual funds, insurance policies, and more. This comprehensive snapshot helps users track their financial goals, assess their risk exposure, and optimize their investment strategies.
• Simplified portfolio management: Managing diverse investment portfolios can be daunting. AAs simplify this process by offering a centralized dashboard to monitor investments’ performance, asset allocation, and risk exposure. Users can rebalance their portfolios with greater accuracy and timeliness.
• Goal-based planning & investing: Setting and achieving financial goals are integral to wealth management. AAs enable users to define specific goals such as buying a home, funding education, or planning retirement. With access to real-time data, individuals can make informed decisions to align their investments with their objectives.
• Risk Assessment and mitigation: A crucial aspect of wealth management is understanding and mitigating risks. Account Aggregators can analyze the aggregated data to provide insights into potential risks and vulnerabilities. This empowers users to make adjustments to their financial strategies and enhance their risk management practices.
• Customized insights: AAs can offer personalized insights based on individual financial behaviors and goals. Machine learning algorithms can analyze data patterns to suggest tailored investment options, tax planning strategies, and more.

While users can benefit immensely from AAs, the applications extend also to service providers to expand into newer offerings while also safeguarding their own interests:

• Customer onboarding: Whether it is KYC or new customer signups, customer onboarding inevitably is a tedious and repetitive process often leading to drop offs in the customer journey. AA can solve this with a few clicks by fetching user information available on other existing platforms.
• Financial services: Cohorting and cross selling become easier with the vast amounts of financial data of users available to FIUs. Both basic services such as offering insurance and personalised advice on the best plan for a person with dependents/senior citizen parents can be targeted without much friction with AAs. They enable financial advisors to offer more accurate and personalized advice by accessing a client’s consolidated financial data. This enhances the planning process, leading to more effective strategies for wealth creation. Investment decisions become more precise when based on data and a comprehensive view of one’s assets. AAs equip advisors with the necessary insights to design portfolios that align with their clients’ risk tolerance and financial goals.
• Credit assessment: AAs can aid lending institutions in assessing the creditworthiness of individuals. By analyzing an individual’s financial behavior across different accounts, lenders can make more informed lending decisions.
• Estate planning: AAs assist advisors and lawyers in estate planning by providing an overview of an individual’s assets and liabilities. This simplifies the process of creating wills, trusts, and other estate planning documents.

AAs adhere to stringent data privacy and security regulations. This ensures that the sharing of financial information is done securely and in compliance with the law. Technology service providers providing data encryption to FIPs and decryption services to FIUs also have a bright future. 

The use cases laid out are by no means exhaustive and the innovation with the AA framework is yet to be seen with the financial landscape of India now ripe for disruption. Within that, AA is poised to redefine wealth management. Both individuals and FIUs stand to gain greatly with the applications of the AA framework. As technology and the framework continue to evolve, AA is set to play a pivotal role in not only shaping the future of the larger financial ecosystem but also boosting the growth of India’s economy.