A Public Digital Infrastructure: India Stack

Introduction
India is rapidly emerging as the global hub for the fintech industry with a projected market opportunity of US$ 1.3 trillion by 2025 and more than 42,000 active fintech firms. Over the course of eight years between 2014 – 2022, funding for more than 550 start-ups has surpassed almost US$ 22 billion. Additionally, India has emerged as a prime destination for the digital payment revolution, with a fintech adoption rate of 87%, much exceeding the global average of 64%. For Indian start-ups, the JAM trinity (Jan Dhan-Aadhaar-Mobile), the digital public goods infrastructure and the India Stack are blessings to employ fintech to cross-sell products, making it an essential revenue source for business owners. In most economies, there have historically been significant hurdles to financial inclusion emanating from societal attitudes, legal frameworks, and prohibitively high transaction costs.

Digital technologies provide a formidable means of removing these obstacles and expanding access to banking and the financial system. Due to Covid-19, it is anticipated that consumer preferences and consumer behaviour will continue to alter in favour of digitally assisted modes of engagement. “India Stack”, a unified software platform, is the first national digital infrastructure in the world, offering a low-cost digital push, leaping at least two financial technology generations. A "stack" is known as all the technologies required to execute an application: including programming languages, architecture, libraries or lexicons, servers, user interfaces and experiences, software, and tools used by developers like APIs that connect databases and software. In other words, India Stack is a technological foundation that combines a set of Application Programming Interface (APIs), acting as a technical link that enables two software programs to connect with one another. India has seen exponential growth in digital service adoption, with financial services at the forefront of this innovation and transformation. It allows governments, businesses, start-ups, and developers to leverage this unique digital Infrastructure to play a catalytic role in the evolution of the digital ecosystem. Only 35% of Indian adults had a bank account in 2011. However, due to the evolving impetus of the Government, the number had exceeded more than 80% by 2017 bringing approximately 1.4 billion population currently, in the digital age. Prime Minister, Mr. Narendra Modi implemented a website for global solutions, “indiastack.global” in the celebration of Digital India on 4th July 2022. India Stack Knowledge Exchange (ISKE) Program 2022 was presented to the global community to showcase India Stack solutions & goods and invite any nation to adopt and customize India Stack solutions for their use, contributing to the repository of Global Digital Public Goods. The success of the India Stack is already having an international impact. To "internationalize" the India Stack (UPI), Singapore and India signed a high-level agreement in 2018. While the Philippines, Morocco, Vietnam, Myanmar, and more are interested in Aadhaar.

Foundations of the India Stack

• Identity Layer (Using identity as a utility; an enabler)
  This allows one to authenticate oneself from any location as it serves as both a tool for identification and a facilitator of authentication, controlled by the Unique Identification Authority of India (UIDAI). With Aadhaar, a person would just need to know the 12-digit unique number to prove their authenticity without having to carry any physical documents or can simply scan their finger to confirm his/her authenticity (iris scan is also available as a mode). The comprehensive design of Aadhaar makes it impossible to have duplicate or false identities.  The world's largest digital identity program of more than 95% of India's population or approximately 1.35 billion people has an Aadhaar biometric ID presently as of January 2023. There are a variety of ways to quickly authenticate a user’s identity such as:
  • Electronic Authorization (e-auth): It is the process of electronic verification of the identity number (i.e., Aadhar) of a user via UIDAI.
  • QR Code Scan:  Every Aadhar card contains a QR scan that can be used to authenticate the user’s identity from the UIDAI database.
  • Offline XML: It is an official document, XML, containing information about the user that can be generated from the UIDAI portal and can be shared with any other party.
  • e-Aadhaar: These are signed PDF copies of Aadhar cards that are equally valid as a physical Aadhar card that can be downloaded from the UIDAI database.

• Paperless Layer (Store & Retrieve Data digitally)
  Managed by the Ministry of Electronics & Information Technology (MeitY), offer a paperless ecosystem that stores information and documentation digitally, verify them, and authenticates them anytime and on any device. It provides the ability to store & retrieve data digitally in the following ways:
  • e-KYC: An electronic KYC service used by the UIDAI information system to authenticate a user’s identity. It significantly lowers the cost of paper and provides instant verification. More than 13.8 billion people have undergone e-KYC since January 2023.
  • Digilocker: This public utility allows users to securely authenticate their documents and certificates, in order to store, verify and share digital documents. There are almost 141.34 million registered users on Digilocker.
  • e-sign: It is a digital signature that can be issued by an Aadhar card holder to produce legal digital signatures on any document, at any time, using any device.

• Payments Layer (Increasing transparency and ease)
  Digital payments are now accessible to everyone with the National Payments Corporation of India (NPCI) as the administrator. It seeks to transition everything in the digital era, making payments and financial transactions cashless in order to enable transparency and usability.
  • Unified Payment Interface (UPI): It plays a significant role by simply registering consumers on a VPA (Virtual Payment Address), to facilitate the transfer of money digitally, securely, and instantaneously from any bank account to any other bank account (individuals or merchants) without having to go through complicated online or offline procedures. There are 382 banks that use UPI, generating 7,829.49 million transactions in terms of volume and US$ 15.68 billion (Rs.12,82,055.01 crore) in terms of value.
  • Aadhaar Payments Bridge (APB): This payment system allows users to electronically channel the government benefits and subsidies in their Aadhaar-enabled bank accounts using their Aadhaar number as a central key.
  • Aadhaar Enabled Payment System (AEPS): This service allows an Aadhar holder to access his/her Aadhar-linked bank account to perform basic banking transactions like balance inquiry, cash withdrawal, and remittances through a Business Correspondent.

• Data Layer (Data Empowerment and Protection Architecture: Enabling easy data flow)
  This enables safe data transfer facilitated by MeITY and the Reserve Bank of India and authenticated by the data owners. Data Empowerment & Protection Architecture (DEPA), an electronic consent architecture, securely democratises the market for data while allowing user-controlled data sharing, flow, and retention. In accordance with the proposed Data Protection Law, organizations must obtain the user's approval before using or disclosing their data. This regulation has given rise to the concept of "data access fiduciaries," which are organizations designed to enable the management of individual consent. Sahamati Foundation is a Collective of Account Aggregator Companies (also known as NBFC-AAs), which the RBI identified as a new category of NBFC in 2021.
  • Account Aggregator (AA): It is an RBI-regulated entity (with an NBFC-AA license) to access and shares financial information digitally, from the user’s bank to any other regulated financial institution in the AA network. The consent of the user is required to share the data (like credit score, tax data, pensions data, and securities data (mutual funds and brokerage). It would facilitate easy loan sanctions without involving multiple agencies.
  • Consent Artefact: A digital document defines the scope and parameters of data being shared in the AA network that a user consents to in any data-sharing transaction.

Case Studies

New Opportunities with India Stack
The Open Network of Digital Commerce (ONDC), credit enablement through United Payment Interface (UPI) and account aggregator (AA), and other technological advancements resulting from India's digital stack would radically rearrange India's supply chain. India's supply chain will improve greatly, making it much simpler to get goods and services to everyone. The Reserve Bank of India's AA system will revolutionize the credit and lending landscape.

Open Network for Digital Commerce (ONDC)
ONDC envisions to establish an open digital platform for merchants and buyers to conduct their business digitally. Presently, many of these businesses engage on closed platforms (like tech giants, Amazon) which are dominated by a few. The ONDC is an open network protocol developed by leveraging India Stack, an Open Digital Ecosystem (ODE) to amplify the power of these MSMEs by linking them all on a single platform, promoting fair competition. India Stack is based on Public Digital Assets (PDAs), utilized to create customized, open, and innovative digital solutions (like Aadhar, UPI, CoWIN, etc). This network would encourage an accelerated adoption of technology tools like artificial intelligence, machine learning, blockchain, etc. through innovation and experimentation, building on the core concepts of decentralization and openness. The centre intends to handle working cash needs, advance digitalization, and help small businesses participate in the e-commerce revolution with these services. FinTechs will benefit from appealing business prospects by enabling the digital presence of local businesses, in the payment, lending, and FinTech SaaS sectors. ONDC would revolutionize the e-commerce space of India by creating new innovation opportunities, fair competition, improving the standard of living, the increasing role of rural or backward areas, access to easier credit, and many more.

United Payment Interface (UPI) 2.0
In August 2018, NPCI launched the second version of UPI, designed to improve the features of the product to serve more use cases across industrial sectors, thus boosting adoption. The key features of UPI 2.0 are as follows:

• Linking of overdraft account
  All overdraft account features will be made available to consumers, and they will be able to transact promptly. An additional digital method for accessing the overdraft account will be facilitated by UPI 2.0.
• One-time mandate
  Customers would have the option to pre-authorize a transaction and pay later as mandates can be instantly created and carried out. The amount will be deducted on the day of the actual purchase and paid to the retailer or individual user.
• Invoice in the inbox
  After confirming the amount and verifying any other crucial information listed in the invoice, customers can make a payment.
• Signed intent and QR
  If the merchant is not a verified UPI merchant, it notifies the user and provides them with information that would help determine the transaction as it adds an additional layer of security.

Moreover, it opens up new opportunities for domestic as well as foreign players as Indian travellers would soon be able to pay internationally, starting from Singapore and the United Arab Emirates via UPI.

Consent-Based Account Aggregation
Data Consent (Data Empowerment and Protection Architecture) layer envisions to introduce a new type of digital data model facilitated by Account Aggregators, a particular class of NBFC regulated by the RBI, which will operate as data mediators between individual users/entities who are the primary owners of data and the banks, financial institutions, and Non-Banking Financial Company (NBFCs) that maintain & manage it. Banks, Microfinance Companies (MFCs), insurance service providers, tax/GST platforms are classified as Financial Information Providers (FIPs) and users/entities will be categorized as financial data owners respectively. Alternatively, Financial Information Users (FIUs), such as lenders, wealth managers, brokers, Robo-advisors, neo banks, and wallet firms (or other banks/NBFCs), will join the network to extract client data from customers' primary banks and use it for specialized and targeted marketing. Better illustrations from use cases are as follows:

• Flow-Based Credit System
  The Account Aggregator architecture will assist individuals and small enterprises in using data to expand credit availability. Moreover, FIUs will be able to use this pre-existing infrastructure for less money.
• Aggregated Account Statements & Analytics
  FIUs could access the user’s banking/wealth/tax accounts that are consolidated into different categories (food, travel, etc) for insights and companies can share this data in exchange for offers and discounts.

Moreover, 7 companies are currently conducting a closed group test, who have received the AA license: Finvu, Onemoney, CAMS, NESL, MyUniverse (Aditya Birla Group’s FinTech company), Reliance Jio, and Yodlee.

Road Ahead
India Stack, a "public good," is a cost-effective innovation and data democratization tool that allow FinTech start-ups like neo-banks, personal finance management platforms, lending start-ups, and more, access high-quality, authentic data without spending a massive amount of money on bank and financial institution, while maintaining data security. In the last 7 years, India has launched many digital transformational projects, including Aadhaar, Unified Payment Interface, Digilocker, UMANG, API Setu, CoWIN Vaccination Platform, Government e-Market Place (GeM), DIKSHA, Ayushman Bharat Digital Health Mission, etc. But the most successful story of India Stack has been the inclusion of the underbanked population in the financial services sector through UPI and payments. India has experienced a surge in bank account openings from 35% to 80%. Furthermore, India's distinctive identity-building strategy and commitment to broadening access to financial services do not have to be limited to itself but are also making its place in the global space.