India isn’t exactly known for efficiency. The chaos that slams your senses as you step off the plane into the Land of Dharma stands in contrast to the sense of stillness that India’s old wisdom brings. Today’s India is in constant churn. Still shackling off the chains of colonialism and bureaucracy, India can appear to move at the cumbersome pace of an elephant; but sometimes, that elephant charges.
FinTech is an arena of speed and nimbleness. Firms move at the pace of a nimbus cloud as startups rise and fall in an increasingly competitive space that promises to transform a world moving from analog to digital. Security is also placed at a premium, as conflict transitions from firing mortars and metal to acquiring capital and computer power. But above all, what is needed in FinTech is efficiency.
A country known for a fetish for over-administration would be assumed to be one of the last places to find quite possibly the most advanced and successful FinTech “stack” on the planet. Cause and effect enjoy playing coy and serendipitous games with each other, and it is in India where we find the confluence of separate information streams merge into the exceptional India Stack.
Let’s break down the basics. For our purposes, “FinTech” is simply the intersection of finance and technology. A massive opportunity in FinTech is integrating people into financial systems via technology and vice versa. This is essentially India Stack’s main cause, but not its main effect.
India Stack is a coordinated symphony of technology to help governments, businesses, startups, and developers utilize a digital infrastructure and unique API (Applied Programming Interface – a set of algorithms and code that allows different platforms to interact; think of it as a universal translator between applications). Disparate information that by itself is not too valuable is melded together to create a golden ingot or stack of data. This “stack” of data combines universal biometric data (a fingerprint), digital records, access to financial accounts such as banks and digital wallets, and the consent to send and retrieve the aforementioned data.
Breathe – I know it’s a lot of information, but in practice, India Stack is simple. And that simplicity allows access to over a billion Indians. And to put it simply, here is what the current stack of API’s looks like below:
- Aadhar: The “foundation” and the biometric base of India Stack, where iris scans and fingerprints match up with a unique numerical ID that is now necessary to acquire government welfare and social services while now extending its necessity to the private sector where bank accounts and cell phone contracts require it.
- eKYC: A system to help stakeholders verify a customer’s identity and information, much of which is connected to Aadhar.
- eSign: A service that allows applications to replace manual paper-based signatures allowing an Aadhaar holder to electronically sign a form/document anytime, anywhere, and on any device legally in India.
- Unified Payment Interface (UPI): The essence of FinTech lies in UPI as it enables all bank account holders to send and receive money instantly from their smartphones, without having to enter usernames and passwords. UPI users create a virtual payment address (VPA) linked to a bank account (which is linked to Aadhar) where their money travels to and from.
- DigitalLocker: A cloud linked to Aadhar that contains essential documents and certificates such as voter ID, driver’s licenses, school certificates, etc… thereby removing the need and potential loss of physical documents.
- Data Empowerment & Protection Architecture (DEPA): The soon to be final layer of India Stack, DEPA will bring data sovereignty to Indians with citizens controlling their essential data by being able to consent to its distribution to stakeholders such as lenders, insurance companies, and beyond.
Okay, maybe not that simple; but feel free to refer back as we go onto India Stack’s ramifications and a bit of history too.
Silent revolutions produce the loudest changes. For the last decade, India experienced a slow digital uprising until a call to revolution occurred – demonetization.
Demonetization occurred in November 2016 where the Indian government made a surprise announcement that made all ₹500 and ₹1,000 notes null. The only option of exchange for new notes was at banks. Now, the intentions and effects of the infamous demonetization are hotly debated, but today let’s keep a cold focus on a massive consequence – forced and rapid digitization.
Overnight, merchants and vendors had to quickly adapt to the new digital economy to stay afloat. At the same time, millions (perhaps even hundreds of millions) of people were opening bank accounts, many of which were linked to the accelerating Aadhar program. India Stack was being integrated in real-time. Several months earlier, UPI was launched and being widely adopted as it was one of the few ways to actually pay for things in the chaotic aftermath.
Concurrently, the government was ramping up the utilization of an initiative called Direct Benefit Transfer (DBT – Indians love their acronyms if you cannot tell already). DBT enabled the direct transfer of government money and services into bank accounts. It has been used for programs such as basic income for farmers, scholarships, maternity benefits, building toilets, etc… now totaling to 420 programs. The storied corrupt middleman now faced his resolution as the government bypassed him with DBT; now they were reaching even more people after the skyrocketing financial inclusion post-demonetization.
Fundamentally, India Stack has not only integrated India’s citizens into a united market but also has given Indians basic god damn human dignity through the lifesaving and opportunity encouraging benefits received from DBT.
Adam Smith posited that the Invisible Hand of the market moved economies via the eternal dance of self-interest and consumption of others. He was ardent in his laissez-faire or free-market approach to maximize the potential of economies fueling the rising empires of the Enlightenment Era.
But times change; and in economics especially, hypotheses are tested, broken, then found sound, and go there and back again. Economics is known as the “dismal science” as it doesn’t possess the stoic and repetitive rigor of the harder sciences like physics and chemistry. But that also opens it up for more maverick experimentation.
The Indian government has for most of its history shoved the Invisible Hand aside, instead favoring an Iron Red Fist. As economic liberalization was slowly enacted and eventually forced in 1991, India started shaking hands with the market as time went on. There is still a long way to go, but India Stack may allow India to turn a cold peace with Adam Smith into a warm embrace.
A one-two punch of demonetization and now the coronavirus has supercharged India’s plunge into digitization and market opportunity. The advent of Jio and the smartphone revolution in India has been another vital impetus of change as Mukesh Ambani’s march into telecom drastically reduced costs, opened barriers to entry, and fundamentally changed customer behavior in India. A new internet is emerging in the subcontinent as India’s internet userbase exploded 2.5x over the past 5 years to a total of 700 million people…with 1.3 billion and counting being potential future users.
This all comes at a time when the world is defragmenting. Recent actions by “Big Tech” in the US have made foreign leaders recoil at the potential of overzealous censorship and political interference by a random Vice President in Silicon Valley. National sovereignty is called into question in cyberspace, an arena that save for China hasn’t had too many hard demarcations. India’s indigenous streak may now provide the solution for an entrepreneurial revolution and backlash to foreign interference as India’s demographic dividend builds upon India Stack’s API’s and creates a native internet ecosystem.
A danger here is of course the centralization of all this data. The sensitive data of Aadhar and the rest of India Stack is a gold mine for nefarious states and groups; but we are in an era of opportunity, and one of the biggest opportunities today is the pinnacle of decentralization – blockchain.
While the Indian government is unfortunately suspicious of cryptocurrency, it is keen on blockchain. NITI Aayog, India’s premier government think tank, is currently tinkering with the possibility of India Chain. Transitioning or supplementing India Stack through a decentralized digital ledger, encouragement of private blockchain development, and even a stablecoin tied to the rupee. The decentralized infrastructure can provide security against cyberattacks that would usually just need to crack one centralized database; while smart contracts could expedite many aspects of India Stack by seamlessly executing trackable transactions and agreements between different parties through the blockchain.
As you can see, the sky is the limit for India Stack, and the horizon signals an export of this infrastructure to the rest of the world. Just as India gave the world the Upanishads, Buddhism, Yoga, meditation, and many other systems of knowledge thousands of years ago, India now has the chance to turn the wheel of progress once again setting the caravan of the human mind on a new path of discovery once more.