Home / Opinion / Columns /  How the India Stack paved the way for financial inclusion in the country

It seems like a lot of time has passed since one can remember a shopping experience involving soiled currency notes, but it is not even a decade-old phenomenon. The India Stack that came into effect in 2016 has integrated with both merchant and customer behaviour. The popularity of digital payments and managing businesses online has become second nature for most shopkeepers across the country. Accelerated by the pandemic, a vast formal and informal economy has formed around digital transactions built on the India Stack that provides a distinct digital identity to the user. As a pack of functional public digital platforms such as Aadhaar, the India Stack brings on public and private entities to operate within the robust regulatory infrastructure of the Reserve Bank of India (RBI).

Peeling the layers

A collection of open application programming interfaces (APIs) that allow the deployment of cashless and paperless products, the India Stack creates a quick link between an individual and the fintech ecosystem, bringing many into the main fold.

Paperless layer: Aadhaar, the 12-digit identity number linked to biometric data includes 90% of the population. e-KYC goes one step further by strengthening the identification systems supporting the Aadhaar-linked bank accounts. There have been 1.064 billion Aadhaar numbers issued since its launch, and e-KYCs have been initiated, which are essentially presence-less.

Consent layer: The Digilocker works as a repository of storing authenticated documents for quick access along with e-sign. The entire consent of personal data sharing on any platform is based on consent where the open personal data store is owned by the RBI.

Cashless layer: UPI is the payments rail of the digital architecture of the e-economy where providing financial services becomes simple and cost-efficient, especially for small businesses. The electronic interoperability of UPI, digi wallets, IMPS and net banking, etc., further makes it easy to pay and receive money.

Furthering inclusivity

Before Aadhaar, the complexity of verifying identity came at a cost that made it difficult for most to have financial access to credit and other banking services. India saw Aadhaar as an opportunity to reduce fraudulent identity claims and extend financial aspirations to the unserved through the Pradhan Mantri Jan Dhan Yojana (PMJDY). Benefits could be directly reached through these zero amount bank accounts through phones and cards. This fast-forwarded the pace of financial literacy across the board, from urban enthusiasm to rural need. While that was a great start, it was furthered by interoperable payments through QR codes, making money flow even more mobile with an added layer of UPI. Small traders and kirana stores became the proponents of the digital wave strengthened by regulations that mandate data transfer only with consent. It’s a singularly competent example of the convergence of technology, regulations and governance framework to beget such a success.

a financially secure future

The market today is the perfect playing ground for private companies to disrupt the status quo. Businesses will continue to be able to tap into a customer segment previously unreachable. The next logical step is the global application and creation of on-ramp Indian companies to be launched abroad. With a talent-rich space, fintech services could piggyback on the India Stack to implement better credit lines, simplify banking and wealth management, which deals purely in data. A foundational approach of bringing financial inclusion up from the bottom, the balance between efficiency and accuracy has been found and will help open up finances across all possible avenues.

Vijay Aggarwal is chief technology officer at digital payments company BharatPe.

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