The Game-Changing Innovation That Could Bring Financial Services to Millions in India

IndiaStack enables cashless, on-demand financial services for all Indians

IndiaStack uses a digital infrastructure to brings paperless, cashless services to anyone with access to a smartphone, tablet, or computer.

The traditional financial system hasn’t worked for millions of Indians. The slow pace, the excessive documentation, the need to travel — all of these barriers locked people out of the formal economy and kept them from accessing the financial tools they need to improve their lives.

IndiaStack is changing the game. Using a digital infrastructure, IndiaStack brings paperless, cashless services to anyone with access to a smartphone, tablet, or computer. It will bring millions of Indians into the formal economy by breaking down the barriers that kept them out. Nandan Nilekani, the founder of Infosys, stated that IndiaStack is “India’s single most important innovation to formalize India’s domestic economy through digital services.”

Not only does IndiaStack ease access to financial services, it will also use the same digital system to help deliver government services in a transparent, accountable, and secure way. And since it’s digital infrastructure is accessible to businesses, start-ups, and developers, IndiaStack is already fostering innovation. Apps are being built to deliver financial, health, and educational services at scale.

By making customer onboarding simple, fast, and cost-effective, IndiaStack has already proven its use for microfinance institutions, banks, and financial companies. Once IndiaStack is fully integrated, with easy authentication, payments, and information exchange, anyone will be able to open a bank account — without having to worry about cumbersome documentation or delays — and send and receive money by linking their account information to a virtual payments address.

IndiaStack is composed of 5 different elements: Aadhaar UID, e-KYC, e-Sign, DigiLocker, and UPI (Unified Payment Interface). Each add value for financial services providers and customers:

1. Aadhaar UID is a biometric-based unique identity platform at the heart of IndiaStack. Based on fingerprint and iris data, a twelve digit unique identification number is assigned to every individual by the Unique Identification Authority of India (UIDAI). For financial services providers, this provides a simple way to identify customers and to retrieve customer information. For customers, the value add is simplicity — where all of their benefits are now linked to their unique identity number.
2. E-KYC is a paperless version of the verification process for new financial customers, called Know Your Customer (KYC). E-KYC empowers people with Aadhaar UIDs to share their information electronically using active biometric consent. Verification of the individual is completed by sending a biometric data pack to UIDAI for validation. UIDAI then sends the personal and demographic information of the individual to the business entity requesting the information, making sure the information is secure at every step. Financial services providers benefit from this process in that they can complete KYC verification procedures efficiently and cost effectively. The online validation is completed in real-time and does not require the storage of documents. Customers save time, effort, and money that they would have spent compiling physical documents.
3. E-Sign, an online electronic signature service, is facilitated via E-KYC to digitally sign a document. This enables contracts and agreements to be executed quickly — while preventing forgery — a plus for both financial services providers and customers.
4. Digital Locker lets people digitally store and share important documents. This service first began as a mechanism to issue government documents to Aadhaar-holders in electronic format. Financial services providers are able to use this functionality to issue certificates, contracts, and agreements, and to access customer documents digitally. DigiLocker allows customers to control who has access to which documents, and it takes away the risk of potentially losing documents. Best of all, this service is free.
5. Unified Payment Interface (UPI) enables universal electronic payments. This cashless process lets financial services providers collect payments, fees, and charges electronically. The speed and efficiency of payments significantly lowers the cost of operations. Customers benefit from the ability to make mobile payments instantaneously and at no cost.

These five components, when fully integrated, will usher in a paperless and cashless India. For financial services providers, the value of integrating into IndiaStack is boundless — easier, faster, and simpler transactions will dramatically improve the customer experience, while the cost of operations will be significantly reduced.

However, IndiaStack is still nascent, and some critics are concerned about security and privacy. The Aadhaar database, which centralizes identifying biometric data of over 1.1 billion people, is an attractive target for cybercrime — though the Indian government asserts that it’s protected by a state-of-the-art security system. The Aadhaar database can also be accessed by the government for purposes of “national security” — a law that is open to interpretation, posing serious privacy concerns. Financial services providers considering integrating with IndiaStack should consider both the potential benefits and costs.

To learn more about the ways that IndiaStack is transforming financial inclusion in India, listen to a recording of Accion’s Global Advisory Solutions recent webinar. The presentation highlights the risks and rewards of IndiaStack and the considerations financial services providers should take before integrating with this digital infrastructure.