Ravi Teja Bommireddipalli is the MD and CEO of Robosoft Technologies. He is a celebrated design thinker and is passionate about ontology.
Many countries around the world are grappling with the FinTech problems of, among other concerns, limited digital infrastructure, interoperability issues, fragmented payment systems and the lack of an innovation roadmap.
Over the last decade, India overcame similar roadblocks by creating the India Stack, the success of which can provide valuable lessons to other countries. The India Stack offers massive scope, covering everything from digital identity to streamlined customer verification to secure document storage to efficient payment systems.
Building Blocks Of The India Stack
At the heart of the India Stack is what is called the JAM trinity, an acronym for its three pillars:
1. Jan Dhan (J) are free savings accounts, which are the building blocks of the digital ecosystem. They enable people to transact digitally, receive government subsidies and participate in various fintech services.
2. Aadhaar (A) is India’s biometric identification system. It provides a unique digital identity, enabling seamless and secure authentication in various financial transactions while eliminating physical identification documents in the KYC process. It offers a simplified and streamlined customer verification solution while easing access to financial services.
3. Mobile (M) has become the primary means of accessing financial services and conducting digital transactions. Mobile banking apps, wallets and payment systems allow users to securely perform a wide range of financial activities from their phones.
The JAM trinity has also been supported by several key technologies and initiatives. For example, instant payment systems and technologies like unified payments interface (UPI)—an instant payment system developed by National Payments Corporation of India—have made payments more convenient. The government’s ONDC initiative also facilitates a single open network digital commerce solution and helps to level the playing field for businesses.
Likewise, the Account Aggregator (AA) framework enables credit delivery based on cash flows rather than relying on collateral-based lending. This approach helps to support entrepreneurship and nurtures SMEs by offering easier access to credit and other financial services.
What’s behind India’s success in tech adoption?
Because of these developments, India has become a global leader in fintech, accounting for 40% of real-time digital transactions as of 2021. Alongside widespread mobile and internet adoption, the India Stack and the JAM trinity have facilitated financial inclusion and innovation, according to the IMF. The Unified Payments Interface (UPI) has also created a seamless ecosystem for digital transactions, while the normalization of eKYC and video KYC processes have made banking services accessible to the unbanked.
The success also involved strategic government initiatives. The Pradhan Mantri Mudra Yojana, for example, provides loans up to one million rupees to non-corporate, non-farm small and micro enterprises. According to government data, 69% of the borrowers under this plan are women entrepreneurs.
What kept digital India on track is a mix of tech and non-tech enablers—open APIs, strong government support, regulatory convergence and incentivizing innovation—created a conducive environment for digital transformation. Various industries, banks and the government worked together to establish a thriving fintech ecosystem.
Based on the success of the India Stack, FinTech leaders and governments around the world should pay attention to how they can think differently in order to overcome the challenges mentioned at the outset of this article. Here are a few key takeaways:
1. Solve problems at scale.
Creating one customer ID—i.e., Aadhaar—across financial enterprises was crucial. Fintech companies should consider how to offer seamless customer experience at a massive scale.
2. Make financial services easily accessible.
India’s National Payments Corporation of India (NPCI) has gone international to facilitate instant money transfers between accounts across country lines and could revolutionize real-time payment systems globally. By offering a robust digital identity system, other countries can make it easier for individuals to access financial services.
3. Collaborate for a common vision.
India’s vision of a Digital India has been supported by government policies, regulations and the collaboration of various industries. The Reserve Bank of India and other regulatory bodies have created an enabling environment for fintech growth while ensuring consumer protection.
Fintech start-ups should collaborate with banks in order to benefit from knowledge sharing and resource pooling. Likewise, countries can foster collaboration between technology providers, industry stakeholders and regulators to create an ecosystem that supports and promotes digital initiatives in the fintech sector.
4. Keep it simple.
Financial services tend to involve complex processes, but technology can simplify them for users to ensure broader adoption and usage among the population. Focusing on a user-friendly onboarding and intuitive user interfaces can make it easier to adopt and use digital financial services.
The EASE 3.0 framework in India, for example, provides real-time performance tracking to enable smart banking. Through a data-driven approach, it has automated the traditionally lengthy lending process at large public sector undertakings (PSUs) in India.
5. Keep up with evolving technology.
As India moved toward paperless transactions, cloud-based document storage systems like DigiLocker were implemented to enable easy and secure access to important documents. Web3.0 can likewise decentralize finance and secure transactions through blockchain while the metaverse creates interactive virtual environments for personalized banking experiences.
In short, by prioritizing financial inclusion and collaborative efforts to drive innovation in finance, countries can give their economies a much-needed boost and solve the FinTech challenges that have been slowing down progress around the world.
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