The Bedrock of a Digital India
An overview of the India Stack and its disruptive potential
In September 2010, India set out on an arduous journey. A journey to provide every one of its billion plus residents with a unique identification number. A journey that would prove to be the beginning of a FinTech revolution for the country.
The unique ID number came to be known as “Aadhaar” (or “Foundation” in Hindi). Its objective was to catapult India into an era where every resident has a permanent, unique, and secure digital identity. In September 2015, the government announced (to great fanfare) crossing the 1 billion mark, making Aadhaar the world’s largest national ID project.
When we first heard about the project, the concept did not seem new. Having lived in the US for the past eight years and witnessed first-hand the benefits of the social security number (SSN), it looked like the Indian government was finally pulling up its socks and playing catchup. Other than the massive scale of the undertaking, nothing seemed special about Aadhaar.
But upon closer inspection, what we learnt was nothing short of awe-inspiring. The vision behind Aadhaar is revolutionary, the opportunities endless, and the potential for innovation profound. We feel privileged to have the opportunity to share our journey of discovery with you. If the article below piques your interest and you develop an itch for the gory technical details, feel free to explore iSPIRT’s website.
iSPIRT is a volunteer organization that is the driving force behind what has come to be known as “The India Stack”.
Introduction — Aadhaar and The India Stack
Aadhaar is the name given to the national identity number assigned to every resident of India. Similar to the process of procuring an SSN, to get an Aadhaar number, one must provide the government with documents verifying the following demographic information: Name, Gender, Age and Address.
However, unlike the SSN, residents also provide biometric information in the form of fingerprints and iris scans for their Aadhaar card. The availability of biometric information has opened up a plethora of opportunities through the addition of an open technology platform.
Hold on… the addition of a what?
A technology platform is anything that serves as a foundation upon which other applications, processes, businesses and technologies can be developed. The platform essentially bears the “fixed costs” of developing certain functionality and opens up this functionality to the world so that people can innovate without the burden of massive upfront investments.
In today’s lingua franca, iOS & Android are the most talked about platforms, but both public and private sectors can build platforms, and history is littered with examples of how platforms fuel innovation.
- GPS is a government provided platform underpinning Google Maps, Uber and several other successful technologies
- Facebook is a private platform that allows development of applications such as Farmville and Messenger
- The Internet itself is a platform upon which the entire worldwide web was built
Funnily enough, even the ‘low-tech’ freeway system was a platform built by the government as a public utility that anyone could access and build businesses around.
The Indian government is building out the digital equivalent of the freeway system and calling it “The India Stack”. Through an open application programming interface (API) sitting atop the biometric-enabled Aadhaar system, the India Stack provides a way to build an entire digital world around a uniquely identifiable individual. The apps can be designed for desktops, phones, wearables, and pretty much any hardware you can conceive. This forward looking vision is central to India Stack’s philosophy.
The Vision for Tomorrow
Raj is about to join an MBA program, and wants to apply for a student loan. Even though he banks with HSBC, he believes that he will get better rates from Citibank. As part of the due diligence, Citibank needs to collect an official admission letter and Raj’s college transcript to see if he qualifies for the Good student discount. Hence Raj opens his phone, navigates to his “digital locker”, and grants Citi one-time access to these documents.
Citi would also like to get a good sense for his credit-history and believes that asking Raj for his financial history will provide it with a better sense for his credit-worthiness (as opposed to looking only at publicly available records). Citi thus requests Raj to provide it with one-time access to all his prior financial transactions. Citi then runs this information through their machine-learning based credit scoring models.
A few clicks later, Raj shuts his laptop from the comfort of his bed. He got a fantastic deal from Citi, signed all the documents, and got his loan approved in minutes! Time to go to sleep.
Sounds incredible! But how does a juiced-up ID card enable this kind of innovation?
The India Stack is comprised of four layers that perform “basic” functions and operate independently.
1. Presence-less Layer:
Upon enrollment in the Aadhaar program, the demographic and biometric information provided by the enrollee is stored in a centralized government database, with the 12-digit Aadhaar serving as a unique identification key.
Everyday devices today can capture scans of fingerprints or the iris. When a third party service provider such as a bank or a hospital needs to verify the identity of their customer, all they need to do is use these devices to capture and send the customer’s Aadhaar number and biometric information to the centralized database for verification (see Figure 2).
The centralized database uses sophisticated fuzzy-lookup algorithms to match the received information with the stored information. The algorithm then returns “yes/no” information back to the requesting party.
In essence, Aadhaar eliminates the need for a customer to be physically present or even produce ID cards for proof.
The ability to authenticate identity on demand without a paper ID or physical presence can remove a lot of tiny and big hassles. Imagine walking through the airport without your ID, but still being able to seamlessly check into and board your flight! While the presence-less layer is groundbreaking by itself, the true potential lies in how this layer interacts with the rest of the stack.
2. Paperless Layer: “Red tape” / “Form-ophobia” / “Paper pushing” / “Shuffling documents”
To overcome the drain on productivity that is everyday paperwork, the government has added a Paperless Layer to the India Stack. Sitting right atop the presence-less layer, the paperless layer consists of two simple components:
- Digital locker
- Digital signature
Digital locker: Each Aadhaar number is uniquely tied to a set of documents that live in a digital locker assigned to that number. As shown in figure 3, documents living in the locker can be issued by government agencies (e.g., land ownership records), third party organizations (e.g., college transcripts), or the individual himself (e.g., legacy paper documents). The individual can choose to share documents from his locker with any entity that requests the information (e.g., a hospital requesting his medical records).
In order to meet the standards of the Digital Locker ecosystem, the documents need to contain a Document ID as well as a Digital Signature from the issuer. Since all documents in the locker are signed, the third parties accessing the documents can be assured of their accuracy. Meanwhile the individuals can use the locker portal to control who accesses their records and for how long.
This process eliminates fraud, reduces administrative burden, ensures anytime/anywhere document access and gives individuals control over what they wish to share.
Each of the players in the locker ecosystem (Directory, Gateway, Portal, etc.) can provide turnkey solutions. One such use case is a packaged “proof of address” document bundle. In fact, this bundle is so ubiquitously requested that the government already offers it under the banner “e-KYC” (electronic-Know your Customer). So telecom companies, for example, can request for this package, and approve a new account in seconds. Such solutions reduce customer acquisition costs, enabling financial inclusion for millions.
Digital signature: The digital signature capability (which is the second half of the paperless layer) allows individuals to electronically sign a contract with any entity without a paper or pen.
To get a document signed, the requester (say, a bank) uses the ASP (see figure 4) to capture customer biometrics. The ASP then sends these details (along with the required document attributes) to a certifying authority for identity authentication. Upon authentication, the certifying authority returns a unique digital certificate which the ASP embeds into the original document.
This process allows individuals to securely sign information anywhere, anytime. When implemented together with the digital locker, it eliminates the need for any form of paper, and combined with the presence-less layer, it enables all business to be conducted digitally.
While banks, insurance companies and other entities may build their own ASPs, third party ASPs will emerge to provide tailored document management solutions for both businesses and retail customers.
3. Cashless Layer
To reduce the costs of digital financial transactions, the government has built a Unified Payments Interface (UPI). This interface forms the Cashless Layer of the India Stack.
Underpinning the UPI is a very complex technical architecture built by some very smart people. The cashless layer of the India stack and its impact on the Indian financial system deserves its own post, so we will only give it lip-service in this write-up.
Update: The cashless layer explained in its own post.
From a business / end user perspective, suffice to say that it acts as an instantaneous payments bridge between any two entities.
A quick aside, on what makes the UPI so powerful: Think back to Pre-Venmo times in the US, when every non-cash financial transfer used to take several days. Indeed, even today, Venmo transactions are not truly instantaneous. Apps like Venmo provide only the illusion of an instantaneous transfer. In reality, the transaction has been scheduled and will take its own sweet time to resolve.
Why does this matter? Because one can simply cancel the transaction at any point before it truly resolves (like later in the day, after you have already eaten your ice-cream), and your counterparty may never get the money. This is why you cannot load your investment account with Venmo money.
The reason for this delay is the complexity associated with authentication of payments sources, which is solved by the India Stack.
Imagine a world where all financial transactions take place instantaneously. The working capital implications for small businesses can be profound.
All transactions can also be dutifully logged and stored in the digital locker for future access. Recall that the locker allows you to share a summary / sanitized version of these transactions with a requesting party — say, a lender who wants to evaluate your credit worthiness.
Powerful stuff! The truly incredible thing is that UPI is a reality today.
4. Consent Layer
In addition to the existing infrastructure, the iSPIRT team is working on building an “electronic consent architecture”. The technical details of this architecture are still being ironed out, but the idea behind the architecture is to allow individuals to provide registered entities access to specific data about themselves from the India Stack layers. Access will be provided in the form of consent tokens that are time-bound and identity-verified.
This is where a majority of the power of the India Stack will be realized. By building a digital world around every individual and giving them the ability to determine how much of that world to share, the India Stack will enable rapid innovation in the financial services sector.
The Coming Disruption in the Indian Financial Sector
Aadhaar is already being used heavily by a variety of government agencies for their respective programs. Aadhaar-based authentication has eliminated thousands of ‘duplicate accounts’ and saved government welfare programs billions of dollars.
Thanks to Aadhaar, an Indian farmer no longer needs to stand in line for his monthly farming subsidy. Instead, the government can electronically authenticate his identity and directly transfer the subsidy over UPI to the farmer’s Aadhaar-linked bank account.
But beyond the government, the India Stack presents opportunities for private players to enable disruption. By taking down both the cost of customer acquisition and ongoing maintenance, it enables businesses to tap into customer segments previously out of reach.
Suddenly, we go from a world where a small street vendor does not even have a bank account to a world where the same vendor now conducts all his transactions digitally, uses the information to obtain credit, grows his business and even invests his savings profitably.
In short, the India Stack builds a digital portal to the entire financial world.
As clichéd as it sounds, the possibilities seem endless. In our subsequent posts, we will take a deeper look at some of the ideas discussed in the post.
While our optimism for the India Stack is evident, we do realize that it comes with its own set of challenges. Is it really that easy to work with the government? What are the security concerns with having so much information in one centralized database? Will the government be spying on me? Can I trust third parties to build safe and encrypted networks for information transfer?
As we discuss opportunities in further posts, we will also bring to light such challenges and potential ways of overcoming them.