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DigitalFinancialServices:IndiaStackanditsRoleinFinancialInclusionShreyaChatterjee,IFMRLEAD

India Stack is a publicly available Application Programming Interface that gives programmers and organizationssecureaccesstoproprietysoftwareapplications.EachAPIwithintheIndiaStackisownedandgovernedbyseparateentitiesliketheNationalPaymentsCorporationandtheUniqueIdentificationAuthorityofIndia.Effectively,IndiaStack enables the development of products and services that could open upmany opportunities in the financialservices,healthcareandeducationsectorsoftheIndianeconomy.Forexample,theIndiaStackinfrastructureoffersanalternative to replacingcostlyand timeconsumingprocedures suchascollectionandstorageofpaper records(bankstatements,ITR,KYC,etc.),scrutinyof“wetsignatures”,andsecurehandlingofphysicalcash.Thus,utilizingIndiaStackcanreducetheoveralloperationalcoststoacquireandservelowincomecustomers(byasmuchas$1.5Billion(Microsave,2016)).Furthermore,itcouldreduceclientverification(KYC)andaccountopeningtimetoafewminutes – vastly improving customer experience, and translating to very significant implications for the financialinclusiondriveinIndia.

Source:iSpirtwebsiteWhatisIndiaStackcomposedof?

Component Whatitdoes Progresssofar

Aadhaar Auniquebiometricidentitycard • TheUIDAIhasprovidedAadhaarcardsto 93% of the population andgenerated298Billiontransactions.53%ofbankaccountsunderthePMJDYareAadhaarseeded

E-KnowyourCustomer(E-KYC)

Includes a public digital safe deposit lockerforissue,storageanduseofdocuments

• 41banks, 31 regional rural banks , 15Non-banking financial institutions and5 cooperative banks have integratedtheE-KYCapplication

• The government’s digital lockerinitiative has 40 Lakh sign-ups, with amajority of sign-ups from thedemographic 21 to 30 years andheavilyskewedtowardsmen.

E-signature A digital security process that enablescustomers to request a secure digitalsignature from a central government servertoremotelysigndocuments.

• Currently provided by 4 serviceproviders–e-mudhra,C-DAC, (n)CodesolutionsandNSDLltd.

UnifiedPaymentsInterface

UPI platform, launched by NPCI, is a systembuilt on the existing IMPS platform thatpowersbankaccountsofparticipatingbanks,facilitates P2P and P2B transactions in asingularmobileapplication

• While as many as 29 banks haveconcurred to provide UPI service totheircustomers,21bankshavealreadyjoined the UPI as payment serviceproviders(PSPs).

PresencelessProvidinganaconally

accepted,uniqueID

ConsentDrivenSecuremovementofdatabasedonuserconsent

PaperLessProvidingdigitalmeansofstoringKYCdocuments

andacceptabilityofdigitalsignaturesbasedonuniqueID

CashlessAccessingbankaccountsandmobilemoney

usingtheuniqueIDandauthenccacng

digitally

IndiaStack–Includingtheexcluded

India Stack provides open source infrastructure that can build a healthy, competitive and informed productecosystem,buildingcustomerfacingsolutions.AccordingtoTracxn1-astart-updatatracker,over800fin-techstart-ups have emerged in the last three years and of these 22% are involved in alternate lending, 5% in bankingtechnologyand19%inmobilewalletsandpayments.Avarietyofmodelsbuiltontheinfrastructurearebeingtestedoutonthefield.Someexamples:

• Amobileapp,usingtheIndiaStackinfrastructuredesignedbyCapitalFloat,theonlinelendingplatform,waspiloted among retailmerchantswho use Ekowallets for remittance transactions,whowere than able toreceivesmallticketloansduringthesameday,disbursedandappliedfordigitally.

• SuvidhaMicrofinance partneredwith Axis bank to provide its low income customers loans at their retailoutletsusinganassistedmodelwiththeirretailstaff-whereinthecustomer’spreviousfinancialtransactionswereusedtoassesscreditworthiness,theKYCprocesswasentirelydigitallyimplementedandtheloanwasdisbursedthroughaprepaidcardandmadeavailablein24hours.2

WithIndiaStackitisexpectedthatsimilarcollaborationswithinthefinancialecosystemtodelivertargetedproductsfor low-income households in a securemanner, enabling faster, transparent and inclusive platforms for financialgrowth.Itisexpectedthatthesedevelopmentswillprovideasignificantimpetustothecountry’sfinancialinclusiondrive,andallowtheextensionofcrucialfinancialservicestotheverylastmile.

Aretheconsumersreadyfordigitallyprovidedsolutions?

WayForwardIndia stackholds thepotential to createa seamless systemwhereall individualsandbusinesses can transact inapaperless and cashless fashion.Utilizing the India Stack architecture is bound to have very significant impacts onIndia’sdrivetoextendfinancialservicestoeachandeveryoneofitscitizens.However,fortheseaimstoberealized,thereisaneedforimprovementinconnectivityinfrastructure,bridgingthegendergapintheownershipanduseoftechnology, andencouraging all theplayers in theecosystem to adoptdigital payments at all pointsof the valuechain.Furthermore,stakeholdersmustalsopayattentionandcloselymonitordatasecurityandprivacyconcernsofconsumers.

1TracknStart-upSurvey20162iSpirt,“IndiaStackandLendingPilotPartnerUpdate”,June16,2016

FinancialAccountsandAccess:-63%ofIndianshavebankaccountsandthePMJDYitselfhasadded25

Crorebankaccountsapproximately.-23%oftheseaccountsarezerobalanceaccounts.

MobileOwnershipandUsageofInternet-1059Millionmobilesubscribersand97%ofthese

connecconsarewireless.(TRAI2016)Indiahas220Millionsmartphoneusers.17%womenand27%menusesmartphonesinIndia.Only9%ofthosewithlowereducaconlevelsareonline.(PewResearchCentre,

2015)

DigitalLiteracy-45%ofurbanIndiansalongwith51%ofurbanIndians

havelowdigitalliteracy-Womenare12%morelikelythanmentobedigitally

illiterate(FinancialInclusionInsights2015)