Advancing the Account Aggregator System in India Leveraging Blockchain Technology and Homomorphic Encryption

Abstract

The increasing reliance on data sharing for financial services exposes the limitations of traditional data collection methods, necessitating a more efficient and secure framework. The 2024 budget allocation for technology and financial inclusion initiatives signifies the government's commitment to innovation and accessibility in the financial sector, providing momentum for the growth of the Account Aggregator (AA) system. However, the AA system faces critical challenges such as data security vulnerabilities and consent management complexities, hindering its ability to effectively serve India's economic needs. To address these challenges, this paper advocates for integrating blockchain technology and homomorphic encryption within the AA framework. Firstly, it explores the working, history, and applications of the framework released in 2021, followed by an analysis of key predicaments and overall effects. The technical aspects of blockchain technology and homomorphic encryption are then examined to understand their potential contributions to the AA system. Blockchain's decentralized ledger offers tamper-proof data storage and transparent transaction records, enhancing security and auditability. Homomorphic encryption enables secure computation on encrypted data, ensuring privacy and confidentiality throughout data transactions. By leveraging these technologies, the AA system can overcome its existing limitations and better meet the economic needs of India's populace. This paper provides a comprehensive solution with strong potential to enhance the effectiveness and security of the AA system.