India's fintech ecosystem is rapidly evolving, powered by the digital public infrastructure of India Stack. As we step into 2024, India Stack layers like Aadhaar, UPI, Digilocker, and eKYC have emerged as an integral part of the financial ecosystem- enabling new innovations in digital payments, lending, and financial services. Interoperability and open APIs are driving scalability while fintechs collaborate with NPCI, banks, and regulators to ensure security and resilience.
India Stack: A Cost-Effective Innovation and Data Democratization Tool
There has been a lot of buzz about India Stack and how it has emerged as one of the biggest foundations for the transformation of the fintech ecosystem in the country. Let’s take a quick look at what it entails-
India Stack comprises four layers: Identity, Paperless, Payments, and Data. The Identity layer 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. This is the world's largest digital identity program that caters to more than 95% of India's population (approximately 1.35 billion people have an Aadhaar biometric ID as of January 2023).
The Paperless layer offers a paperless ecosystem that stores information and documentation digitally, verifies them, and authenticates them anytime and on any device. The Payments layer makes digital payments accessible to everyone with the National Payments Corporation of India (NPCI) as the administrator. It makes payments and financial transactions cashless to enable transparency and usability. The Data layer enables safe data transfer facilitated by MeITY and the Reserve Bank of India and authenticated by the data owners. Data Empowerment and Protection Architecture (DEPA), an electronic consent architecture, securely democratizes the market for data while allowing user-controlled data sharing, flow, and retention.
India Stack is based on Public Digital Assets (PDAs), utilized to create customized, open, and innovative digital solutions (like Aadhaar, UPI, CoWIN, etc). Different entities, both public and private, leverage the India Stack to build innovative solutions. For instance, fintech companies can use Aadhaar-based e-KYC for customer onboarding, and financial institutions can use UPI for seamless and instant payments.
Scalability, Data Access, and Interoperability Gains for Payments and Lending
India Stack has been a game-changer for the fintech industry, enabling digital payments and credit to reach millions of underbanked Indians. It has been able to build a more inclusive digital economy. It has accelerated financial inclusion by creating a secure, open and an interoperable ecosystem. It has not only facilitated instant money transfers between accounts across the country, but also opened doors for a plethora of fintech products to be built and offered to a wide set of customers.
In early 2000s, one had to do multiple visits to a bank, only to open a new bank account. The process was time-consuming and it could take close to a month for a customer to open a new account and get a debit card. The process was extremely cumbersome for loans – with physical verification being the only option. 20+ years hence- the story is very different. Today, there is no obligation to have a physical presence of a financial institution, for a customer to avail services. One can avail banking services via his/her mobile, eKYC has made verification process quick and simple, and the focus on digital-first journey has ensured that customers could avail a range of financial services, irrespective of their location.
India Stack has played a transformational role in enabling ‘Bharat’. Infact, by using India Stack, rural fintech companies are building digital platforms that enable farmers, merchants, and citizens in rural areas to access financial products and services, including loans, insurance, and investment products.
India Stack has enabled a wide range of stakeholders including governments, businesses, startups, and developers to utilize a unique digital Infrastructure and solve existingproblems around presence-less, paperless, and cashless service delivery. India Stack has simplified KYC procedures, lowering costs.It has also been vital in promoting financial literacy across rural areas.
2024 and beyond: Promising times ahead
These are exciting times for the fintech industry. UPI is already emerged as one of the preferred payment modes across the country. The year will see the increased acceptance of newly launched offerings under the UPI umbrella, including credit on UPI.
Also, the account aggregator (AA) framework is expected to further stimulate fintech innovation in credit underwriting and personal finance management.AA framework will help creation of a single window for financial and banking data, thereby enabling financial services companies to optimize product offerings for their customers.
India Stack will continue to evolve in 2024 with initiatives like Open Network for Digital Commerce (ONDC). ONDC envisages an open e-commerce network for MSMEs by building on Aadhaar and UPI. Such advances can catalyzefintech opportunities in digital payments, embedded finance, and supply chain finance. While the India Stack powers innovation, resilience and security remain paramount. It is imperative that as we innovate and build new products, we also continue to invest in robust, scalable, and failure-resistant platforms.
It will be interesting to see the role of generative AI. With buzz around large language models (LLMs), I certainly believe that LLM built for India should be trained on data churned out by Aadhar and UPI, so as to develop Gen AI tools that can complement them. GenAI can help improve customer support, data analysis, fraud detection as well as document processing.
2024 will also see fintechs more actively engaging with ecosystem stakeholders like banks, regulators, and policymakers to shape a supportive, inclusive, and secure fintech environment as well as promote digital initiatives in the fintech sector. Industry participation in awareness campaigns around safe digital transactions can also help expand the addressable market.
India Stack has triggered a wave of innovation democratizing access to financial services. Responsible stewardship of user data and proactive view to security and stability will be key for fintech resilience and mainstream adoption. With ethical and customer-centric approaches, fintechs can fulfill the promise of digital finance in 2024 and beyond.
As India Stack adds more disruptive solutions in its ambit, it will be able to assist in the creation of new credit lines, further streamlining of banking operations, and the implementation of wealth management solutions in collaboration with fintech firms.
- By Pankaj Goel, Chief Technology Officer, BharatPe