121 Finance has become India's first NBFC factor to be on-boarded onto the account aggregator ecosystem. This opens plenty of opportunities for businesses that wish to use factoring services.
The new framework introduced by the RBI aims to make financial data more accessible by creating data intermediaries called 'Account Aggregators', who act as consent managers for customers. These account aggregators enable the sharing of the user's financial information with the user’s consent from a range of entities that hold consumer data. These entities are called 'Financial Information Providers' (FIPs). The information from the FIPs is provided, on request, to 'Financial Information Users' (FIUs) after obtaining the consent of the consumer.
Account Aggregators (AA) are RBI licensed entities that have apps and digital portals which allows customers to create an account aggregator handle, link their existing financial accounts to the handle and give a use-based explicit consent to the AA to initiate the sharing of data from the FIP to FIU. Like UPI handles enable easy and secure flow of payments, AAs enable easy and secure flow of data between financial institutions. It uses a consent-based architecture that ensures that information cannot be shared without the consent of the customer. Customers can use the account aggregator to access financial services for their personal or business needs.
Globally, data protection has been accorded the highest priority in the financial world. The account aggregator ethos allows data to be accessed on a need-to-know basis and is purely system-driven. Since no human is involved in the flow of information, chances of fraud are automatically eliminated. Data cannot be shared without the consent of all stakeholders. The account aggregator does not process or store any data, and all data is encrypted.
“Sahamati is an industry alliance of account aggregator ecosystem offering several digital public goods for the participants in the AA ecosystem that allows individuals and small businesses to share their digital financial services data with a regulated third party. It is a regulated ecosystem where a customer knowingly gives consent for a specific purpose and a specific period to a specific recipient. We are excited about the opportunities the AA framework is able to open for Factoring with 121 Finance.”, says Mr. BG Mahesh, Co-Founder & CEO, Sahamati.
Factoring is a way to provide funding to sellers who need the working capital to keep their production/ service cycle going. When the invoice raised by the seller is approved by the buyer, it is presented to a Factor who, in return for a fee or commission, agrees to fund about 80% of the cost of the invoice. The seller, now armed with enough working capital, can continue working towards their next cycle or pay off pending bills. It is essential for the Factor to have strong underwriting skills to assess the buyer's credit risk appetite.
Commenting on 121 Finance's arrival on the Account Aggregator ecosystem Dr Ravi Modani, Founder and CEO, of 121 Finance said, "The Account Aggregator framework will enable us to provide better services in the origination, sourcing and underwriting of new customers. The accuracy of the underwriting algorithm will drastically improve, and we will be in a very strong position to identify risk factors. As more and more people join the platform, more use cases will be created, and the underwriting algorithm will keep improving with time. I am very happy that with our on-boarding on the Account Aggregator ecosystem, we will be able to better serve our customers access Working Capital through Factoring services."
The launch of 121 Finance on the AA ecosystem will enable the scale up of innovative financial services products for MSMEs such as Factoring by making the entire process of data sharing and underwriting real time, digital consented, secured, and trusted. The benefits of the framework in terms of reducing the operational costs and credit costs of serving a customer for lenders can result in a big push to MSME lending.
About 121 Finance Private Limited
Jaipur-based 121 Finance is India’s first fintech led NBFC-Factor to receive the Certificate of Registration under RBI’s revised Registration of Factors Regulations (2022). A Digital Factoring company, on a mission to bring factoring, that was only available to corporates so far, to the MSMEs and especially support small ticket size trade to grow. Using financial technologies as leverage, the company is bringing disruptive upgrades to the world of Working Capital Finance with Factoring – collateral-free finance, Embedded Finance, Co-lending, and other customized short-term offerings. Headed by Dr Ravi Modani, Ph.D. in Working Capital Management, 121 Finance is focused on delivering Working Capital loans backed by the knowledge and understanding of its core team in its third-generation legacy in business, finance, and technology.