Open Banking and Account Aggregators: Two Routes Out

Open banking is a bank opening an interface so that a provider the customer has chosen can reach that customer's data on the customer's permission. An account aggregator is a registered intermediary that stands between the institution holding the data and the party asking for it, and carries the permission across. One route puts the bank face to face with the asking party. The other does not.

Who may run a data sharing arrangement and on what registration, what a customer's permission has to satisfy, what may be shared and for how long, and where the data may be kept are all set by the Reserve Bank of India, and all of them are revised. Four of those conditions are named below with the Reserve Bank of India standing where a value would otherwise sit. Every rupee figure below belongs to Suvarna Commercial Bank Limited, an invented bank, and each one is divided out again from that one record rather than carried across.

What is open banking, and who is the bank actually dealing with?

A comparison built on two half definitions teaches nobody anything. Start with the plain machinery and leave the other route out of it entirely. A bank publishes an interfaceThe technical connection one system offers so that another system can ask it a question and get a structured answer back, instead of a person copying figures out by hand.. A provider that the customer has chosen connects to that interface, presents the customer's permission, and receives back the data that the permission covers. Nothing more mysterious than that is happening: a request arrives with a permission attached to it, and an answer goes back.

Three things follow immediately, and all three of them come from the fact that the provider is standing at the bank's own counter: the bank is the counterparty, the bank can see exactly which provider is asking, and every connection is an arrangement between that one bank and that one provider. There is no fourth party in the picture at all. The customer chose, and the choosing is finished by the time the request arrives.

The banking machinery has exactly this shape and nothing more to it, so the ordinary version comes first. A resident tells the caretaker of the building, in person, that the man from the water company may come up and read the meter. The caretaker now knows who he is letting in and on whose say so. If a second company wants a reading next month, that conversation with the caretaker happens again, and the caretaker keeps a second understanding in his head. Nobody stands between the resident and the caretaker, and nobody stands between the caretaker and the man with the clipboard.

Notice which claim the drawing does not make. The drawing does not say three arrangements are too many, and it does not say the bank dislikes the arrangement or is forced into it. The drawing says only that the count of arrangements moves with the count of providers. The count is a fact about the shape rather than a complaint about it.

What is an account aggregator, and where exactly does it stand?

The second route has a part the first one does not have, and that part is the whole subject. Build it from nothing, again without looking at the first. A separate institution sits between the party holding the data and the party asking for it. The institution holds a registrationThe authorisation an institution has to hold from the authority before it is allowed to operate at all, which is a separate question from anything it later does. to do exactly this and nothing else. The customer gives the permission to that intermediary. The intermediary presents the permission to the institution holding the data, the data passes through, and the intermediary neither keeps it nor uses it for anything of its own.

The position is the whole of it: the bank's counterparty is the intermediary rather than the party that eventually reads the data, and one permission written in one format works across every institution connected to the same arrangement. The party that wants the data is now one step further away from the bank than it was a moment ago, and that single step is what the rest of this guide is made of.

The everyday version is a courier with a sealed envelope. The sender knows what is inside it, the receiver will know once it arrives, and the courier carries it without opening it. The courier is not a party to what the envelope says. The courier does hold the proof that they were asked to carry the envelope, and that proof is the only thing they show at either door. A courier who read the letters would not be a courier any more, and would not be trusted at either door again.

One thing in that drawing is easy to read past. The intermediary is drawn as a box that holds nothing, and holding nothing is a design choice rather than an accident of the picture. A party that stood in the middle and kept a copy of everything that went through it would be a data holder in its own right, with its own reasons to use what it held. The whole value of a carrier is that it has no interest in the contents.

How do the two routes differ from the bank's own side?

Both definitions are now standing on their own, so the contrast can be drawn without either one leaning on the other. The customer experiences something fairly similar either way and the bank does not, so read the contrast from where a bank sits. Three differences follow from the single question of whether anybody stands in the middle, and there is no fourth difference hiding behind them.

The first is who the bank deals with. A provider in one case, an intermediary whose only function is carrying permission in the other. The second is how many separate arrangements the bank has to keep alive: one for every provider along the direct route, one in total along the other. The third is who carries the customer's permission. The provider carries its own along the direct route, and a party whose entire job is carrying it does so along the other.

Most of the practical difference lives in the counting, so the counting is worth doing slowly. Suppose a bank wants to be reachable by fifty providers. Fifty is picked to make the counting visible rather than counted from anywhere. Along the direct route that is fifty arrangements, each one written, each one maintained, each one connected. Along the other route it is one. The whole picture, with twenty banks in it, also a picked number, counts the same way: fifty providers each connected to twenty banks is one thousand connections, and the same fifty and the same twenty each connected once to one intermediary is seventy. The first count is a little over fourteen times the second, and every one of those connections is somebody's work.

Does either route move any money?

Data is not money, and neither route moves a rupee by itself. A permission to see a balance is not a permission to spend it. Seeing and spending are two different permissions with two different consequences, and the second one has conditions of its own attached. Where an arrangement also allows a payment to be started, that is a separate act of permission, and the conditions on all of it are the Reserve Bank of India's at rbi.org.in.

The cleanest way to see it is to take the balance sheet on the day either arrangement goes live and then take the same balance sheet the day after. At Suvarna Commercial Bank Limited the deposit line stands at Rs 1,92,000 crore. On the other side, Rs 1,44,000 crore has been lent and Rs 60,000 crore is invested, and once those two are lifted out of total assets of Rs 2,40,000 crore what is left over is Rs 36,000 crore. Net worth stands at Rs 24,000 crore. Now read every one of those lines again on the following morning. Not one of them has moved.

A reader who expected a data arrangement to show up somewhere on a balance sheet is looking for something that is not there and never was. Information is not a claim on anybody and nobody owes it back, so there is no line on either side of a bank's books called information. Money travels along its own plumbing, a different set of pipes with different conditions on it: a payment railThe shared plumbing along which money itself travels between institutions, which is a separate set of pipes from the ones information travels along, and is covered in its own right. is where a rupee moves, and none of these arrangements is one.

What does change, then?

Something real does change, and pretending otherwise would be as misleading as the panic. The change is the speed at which a customer's own position can be seen by somebody who wants their business. Nothing on the balance sheet moves on the day either arrangement goes live, and the path along which a balance can be put next to an alternative has just become much shorter.

The old path is only a few years behind, and most readers have walked it. The customer asks a branch for statements. The customer waits. The statements are collected and stamped. The pile is carried across town to whoever is considering the application. Somebody there reads them and keys the figures in. Every one of those steps takes a day or costs a trip, and each one of them is a place where a person quietly gives up and stays where they are. With the steps removed, the giving up goes with them.

The shortening is the whole of the change, and it is worth stating as narrowly as it deserves. The route that got shorter carries information. The route that carries money is exactly as long as it was, with its own permission and its own conditions on it, and shortening the first one does not shorten the second one by a single step.

Which balance on this bank's books is actually exposed?

This is where the subject stops being plumbing and becomes a bank. The deposit base of Suvarna Commercial Bank Limited splits in two. Current and savings balancesMoney a customer can take out on demand, and the cheapest funding a bank holds, because it pays little or nothing for the privilege of holding it. are 42.0 per cent of deposits, and on Rs 1,92,000 crore that is Rs 80,640 crore. Everything else is term depositsMoney placed with a bank for an agreed period at an agreed rate, so it is contracted to a date rather than callable on any morning the holder chooses., and that is the remaining Rs 1,11,360 crore, or 58.00 per cent of the base. The two parts are the two halves of one published figure rather than two separate estimates, so they add back to Rs 1,92,000 crore exactly.

The uncomfortable part is that those two properties sit on the same balance: the money that is cheapest for this bank to hold is also the money a customer can move this morning, so the funding its margin leans on hardest is the funding that a shorter comparison path reaches first. A term deposit contracted to a date does not move because somebody saw a better rate on a screen. A current or savings balance can, and nothing stops it beyond the customer's own inertia. Inertia is exactly what a shorter comparison path removes.

Put the measure beside it so the stake is visible rather than asserted. Take the year's net interest income at Suvarna Commercial Bank, Rs 7,440 crore, divide it by earning assetsThe assets that actually earn interest, being advances plus investments, and always a smaller number than everything the bank holds. of Rs 2,04,000 crore, and the margin reads 3.65 per cent. Naming the base in the same breath is not fussiness: put that identical Rs 7,440 crore over the Rs 2,40,000 crore of everything the bank holds instead and the same year reads 3.10 per cent, and every bit of that difference is the denominator rather than anything the bank did. Then notice which side of the division the deposit mix sits on. Interest expended for the year is Rs 11,160 crore, and cheap balances are what keeps that bill down.

The limit on all of this, kept beside the figures

The record carries one year for one invented bank, with no movement of deposits, no count of customers, no count of providers and no data of any kind on either arrangement. How much of the Rs 80,640 crore would leave, how quickly, or whether any of it would leave at all is a question one stated year cannot answer. Every division shown above is right to the last rupee inside its own four walls and carries no distance whatever outside them. One year of one bank settles nothing about how any lender ought to be run. Such a claim takes a run of years across several lenders, and the record holds a single year. All of that is true at the same moment as the arithmetic being exact.

Which Indian rules decide the conditions left open here?

Almost every practical question a reader has next is a question about a condition. The conditions are set and the conditions are revised, so a moving row is more useful named at its source than filled in from recollection.

What does neither route do?

Three limits, and each one closes off a reading somebody actually arrives with. Neither route hands anybody anything the customer has not permitted, neither route makes the data true, and neither route changes what the bank owes or is owed by a single rupee.

The middle one is the least obvious and the most useful. An arrangement carries what the holder has, not what is the case. If a record at the holding institution is wrong, both routes will carry the error onwards perfectly intact, and they will carry it faster than the old route did. Speed is neutral about accuracy. And what the party at the far end does with what it receives is a separate matter again: underwritingThe work a lender does to decide whether to lend, how much, and on what terms, which is settled in its own right and is not what a data arrangement performs. is a decision somebody takes after the data arrives, and no arrangement takes it for them.

Readers slide back into the money question here, so the third limit is worth restating in the bank's own language. A deposit is a liability of the bank, repayable to the customer. An advance is an asset, repayable to the bank. Neither of those obligations is created, cancelled, enlarged or reduced by anybody being allowed to look at a balance. Permission changes who can see a claim, and it does not touch the claim.

The other side of the honesty is everything the invented record does not hold. One bank, one year, and nothing beside either of them. The lending is a single total with nothing underneath it: not what the money was lent for, not who borrowed it, and no dates attached to any of it. No such history exists inside a single stated year, so nothing has been restructured and nothing has been written off. The record counts no branches and no staff. The record does not say what sits inside the Rs 36,000 crore of assets that are not advances and not investments, and it does not divide the Rs 11,160 crore of interest expended between depositors and everything else that funds the bank. Rs 24,000 crore of that funding is a residual the record never identifies, so it is left alone and set against nothing. Adoption, switching and the counts of customers and providers are each a maintained series, and no maintained series sits inside one stated year.

How does anybody use this once they are out of a classroom?

Somebody reading a bank uses it as a lens on one line rather than as a story about technology. Such a reader goes to the deposit mix first and asks what share of the base is the cheap, callable kind, then ask how much of that bank's pricing is now easy for a customer to compare against an alternative in a minute. The effect of any of this shows up in the cost of funding over years, never as an event on a day, and looking for it on a day is how a reader convinces themselves nothing is happening.

Inside the bank it arrives as work rather than as an opinion. Whoever runs the funding side, expecting the cheap part of the base to become easier for customers to price against alternatives, can defend that part in ways that cost money, or let the mix drift slowly dearer and charge for it on the lending side. Both are choices with a bill attached. Which bill is the better one to pay takes a run of years across several lenders to settle, and the funding side has to choose long before that answer arrives.

A lender that takes no deposits meets all this differently, and one line on that lender shows the exposure is structural rather than universal. Rukmini Finance Limited, an invented finance company, lends and funds itself in the market rather than from depositors, so it holds no current and savings balances at all and this particular exposure never arises for it. The difference is one of kind rather than a score. A market funded lender has its own funding to worry about, and neither route is the better one in general.

And it reaches a household directly. A person's own position is now something that can be handed over in a minute instead of a week, and the permission given is the only thing that travels. A request to permit a payment as well is a second and different act with different consequences, and noticing that the two are separate is most of the protection a person needs. A person who has not connected an account has not fallen behind at anything.

What is worth keeping from both routes?

Five things worth keeping, and not one of them needs the arithmetic to be remembered.

1. Open banking puts the bank and the asking provider face to face. An account aggregator puts a registered intermediary between them whose only job is carrying the permission.
2. Every other difference follows from that one. Who the bank deals with, how many arrangements it maintains, and who carries the permission are three consequences of one structural choice.
3. Neither route moves money. A permission to see a balance is not a permission to spend it, and Suvarna Commercial Bank Limited's deposits read Rs 1,92,000 crore on both sides of the day.
4. The path that shortens runs from a customer's own position to somebody else's offer, and the cheap, callable Rs 80,640 crore is the balance that path reaches first.
5. Every condition on both routes belongs to the Reserve Bank of India and moves, so the durable thing to carry away is the row and the address rather than a value.