One seldom associates the terms ‘innovation’ and ‘disruption’ with the government of a country. However, the government has taken on the role of a startup in India.
The platform responsible for the greatest degree of market disruption is a project backed by the Indian government named the India Stack.
The Government as a Startup in India : An Overview of the India Stack
The India Stack is a set of open APIs made of different layers. They are named the Presence-less, Paperless and Cashless Layers. It began as a collaborative project between iSPIRT (Indian Software Product Industry Roundtable) and the Indian government.
Nikhil Kumar, Head of Developer Ecosystem at iSPIRT, explains how the government has created a digital infrastructure that allows anyone to utilize and devise solutions for India’s toughest problems.
“The government is building a platform, the India Stack, which is disrupting a lot of industries, for example the financial industry. “We passed last year an open API policy which mandates all large tech platforms built by the government to open APIs for everyone to leverage on these data to launch new products and services.”
The Presence-less Layer
Aadhaar – the Presence-less Layer – is a 12-digit number allocated to each Indian resident that stores their biometric and demographic data in a centralized database.
As of Oct ‘16, the number of people with a registered Aadhaar number and card has surpassed 1 billion, nearly 80% of the country’s entire population.
“It has been the fastest user acquisition ever, even faster than WhatsApp or Facebook.”
Any modern device with a camera, be it a smartphone or laptop, can capture scans of the user’s fingerprint or iris. When a third party needs to verify the identity of the individual, all the individual needs to do is to send a fingerprint or iris scan to the third party which subsequently sends the data to a centralized database for verification. Aadhaar therefore removes the need for a customer to provide physical identification for authentication purposes.
Imagine an airport that integrates Aadhaar into its operations. The airport would allow passengers to check-in and board their flights without the need for their ID or passports as long as he willingly provides his fingerprint or retina scan.
Considered the world’s largest national identification number project, many startups have leveraged on the Aadhaar database to facilitate methods of payment and digital authentication.
This could be the solution India required to usher its vast majority of population — which is still not connected to the internet, is illiterate, and doesn’t own smartphones — to cashless digital payments.
Already, the State Bank of India has launched a testbed in Shirki village where 100 merchants have been provided with Android smartphones and fingerprint scanners, to help them move away from cash. It could possibly replace traditional point-of-sale machines by emphasizing on biometric payments instead.
Aadhaar Payments are likely to be more popular in smaller towns and villages, where loading a wallet to use it, or having to own a smartphone to operate a payments app like the UPI are some of the challenges to adoption.
The Paperless Layer
The next layer, the Paperless Layer, consists of the ‘digital locker’ and ‘digital signature’ components.
The ‘digital locker’ component consists of a set of digitized documents issued to a particular Aadhaar number and is commonly referred to as the e-KYC (Know Your Customer) bundle. These documents can be issued by government or third party bodies and are stored either in a shared or independent repository.
With acknowledgement by the owner of the unique Aadhaar number, third parties can request for these documents from the respective repositories to verify the identity of the individual.
This e-KYC service provides an electronic proof of identity, address, mobile number and email address for the enterprise. It therefore allows for ease of verification regarding the assignment of personal contact details with the Aadhaar number.
e-Sign – or the ‘digital signature’ component – is a mechanism facilitated by e-KYC for that allows for the digital signing of documents.
It can be associated with service delivery applications via an open API for efficient authentication without the use of a physical verification token.
LegalDesk is an example of a startup leveraging on the e-Sign process and offers to create verified legal documents in minutes.
These methods of authentication will make it easier for an Indian citizen to open a bank account or a sign new contract with a telecommunications company. These third parties can simply request for the e-KYC bundle from the collective repository before granting a service or product to the individual. Telecom leaders such as Vodafone and Airtel have already integrated the e-KYC system into SIM card verifications.
The Cashless Layer
The Unified Payments Interface (UPI) – the Cashless Layer – allows fund transfers to be made between banks with the help of a single identifier. Reported as the most disruptive technology in Fintech so far, it marks a huge step towards the financial inclusion of majority of the Indian population and the possibility of instantaneous financial transactions.
This allows small businesses – in particular e-commerce ones – to collect payment from customers without the use of any cards while allowing for a variety of payment methods on the customers’ end. There is also the possibility of mass transfer of cash to individuals – the government sending grants to a group of citizens for instance – by simply referring to the Aadhaar number of its recipients.
The Potential of the India Stack as One
So, what makes the India Stack the most disruptive innovation even among independent enterprises?
Nikhil Kumar highlighted the potential of Aadhaar to disrupt a variety of industries.
“Now it will take 2 minutes to apply for a loan and you won’t need to go to a bank to get financial services. Startups can now onboard customers at scale. The infrastructure is already built.”
An interesting demonstration of the capabilities of the India Stack is the collaboration between Capital Float, a loans company serving Indian SMEs and startups, Aditya Birla Finance, a company offering customized financing solutions and the fintech startup Eko, working for the State Bank of India and ICICI Bank.
By using e-KYC for verification, e-Sign for the loan agreement and Aadhaar for authentication, one can receive small loans from Aditya Birla Finance within minutes of applying for the loan through a mobile-based app created by Capital Float.
Moreover, the India Stack offers and has built-in significant interoperability and trust into the transaction. By integrating the entire payment process with the mobility offered by smartphones, Ritesh Agarwal, CEO of the Fintech startup FonePaisa – the startup which aims to create the world’s first omni-channel payment platform – believes that the framework is an exemplary model to the rest of the world.
“Banks can come together and become interoperable without the international switches such as MasterCard and Visa”
Banks and corporations are leveraging on the potential of the India Stack as well.
Nikhil acknowledges the possibilities that the India Stack engenders.
“We have made banking into an API. It is Apple Pay on steroids. Everyone will end up using it. 22 banks have already enrolled. After one month, there were already 150,000 merchants accepting it. Our goal is to have 100 million UPI users in one year, which is the number of Indians having both a bank account and mobile phone today.”
In a similar manner to a startup, the Indian government is fully dedicated to ensuring its vision becomes reality. The government’s decision of phasing out its higher denomination currency notes of INR 500 and INR 1,000 in November last year was a drastic step to push the majority of the Indian population to migrate towards a Digital India.
With the Indian government pioneering such a huge scale project to harken India into the next digital age, other countries are watching its movements carefully as the immense size of the Aadhaar database continues to grow.