The Account Aggregator framework was expected to be a watershed moment, not unlike UPI, for financial services. So far, its enormous impact has been evident in consumer lending, but with the inclusion of Goods and Services Tax Network (GSTN) on the Account Aggregator framework, credit access to micro, small and medium enterprises (MSMEs) is also expected to be eased.
The MSME sector has long been denied adequate credit due to a variety of reasons. Smaller businesses have been historically deemed risky due to poor credit history, lack of collateral, and limited financial education, among other reasons. However, with the induction of GSTN on Account Aggregator as a financial information provider (FIP), it will become possible for lenders to gain keener insight into the cash flows of these companies.
GSTN on the Account Aggregator framework will complement bank statement data and credit scores to help lenders build more holistic credit profiles, enabling them to extend credit more widely. GST captures transactional data that points towards the health of a business’ sales, purchases and overall financial performance.
Currently, the GSTN has more than 13.8 million users registered on the network. Through AA, this vast user base will be able to consensually share its data with lenders to secure much-needed funds by way of credit. This financial information includes data such as the details of past and future cash flows, data around buyers and invoices, sales and purchase figures, and monthly or quarterly turnover. Aside from the tax payable, GSTN data can also give insight into the SMEs’ tax compliance behaviour, and return filing details.
The use of GSTN data in underwriting for MSMEs will enable cash flow-based underwriting for MSMEs that may otherwise have little to show in terms of an existing track record in debt repayment. Access to GSTN data, especially through the seamlessness and reliability of the Account Aggregator framework, will spur the creation of cutting-edge credit products catering specifically to small businesses.
Here’s an example of its usage – a small business making a purchase on an online B2B marketplace can apply for a loan to finance its purchase. At the time of applying for a loan, a journey supported by AA will allow the user to select FIPs from which financial data can be sought. After duly securing user consent, the AA will pull GSTN data and pass it on to the lender for risk assessment.
GSTN on the Account Aggregator framework is a perfect example of tech, policy, and digital public infrastructure converging to push the envelope on financial inclusion. While it is a given that such a synergy would go a long way in closing the $530 billion credit gap for the sector, it will also be interesting to see how this opportunity is leveraged by lenders, fintech innovators, and tech service providers.
The writer is CEO and Co-Founder FinBox.
