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Can digital currencies and crypto investors help close India’s SME financing gap?

The internet connected the average Indian to millions of sources of information. Could crypto protocols connect Indians to millions of sources of capital?

To achieve its goal of a five trillion dollar economy by 2025, India needs to close an enormous financing gap for its small and medium-size enterprises (SMEs). It already has important assets with which to attract global capital: the youth of its population, the energy of its tech sector, the growth of its internet connectivity, and the rising acceptance of so-called informational collateral in lieu of traditional physical collateral. But what hasn’t yet been done is to integrate these assets into the new multi-trillion dollar cryptoeconomy, which may have the most risk-tolerant, internationally oriented, growth-seeking pool of investors in the world.

In this piece we begin by reviewing India’s need for SME and startup capital. We then tick through India’s existing assets, with particular focus on informational collateral, which combines the previously separate concepts of due diligence and physical collateral into an internet-friendly financing package. Finally, we discuss why global crypto investors could help meet India’s capital needs.

India’s need for SME and startup financing

India is home to more than 60 million businesses, 10 million of which have unique GST registration numbers, most of them SMEs. However, of the one trillion USD worth of total commercial lending exposure of the banking system, only ~25% of it is provided to SMEs, which are considered less creditworthy than larger corporates or multinationals. This has resulted in a financing gap estimated to be between 250-500 billion USD, where meritorious businesses without national profiles aren’t able to access the capital they need to finance their growth. India’s next trillion in GDP growth depends upon solving this problem, but the incumbent financial system may not have the resources to fix it alone. Despite ever-increasing bank branches, India’s legacy financial system is still slow, costly, and unwieldy for borrowers— in sharp contrast to the databases, online KYC systems and intelligent lending apps of new-age fintech companies. And in addition to this high cost of capital for MSMEs, India also has a low baseline level of financial inclusion.

The baseline issue is being partially addressed with low-frill Jan Dhan accounts, which are providing partial banking support for millions of previously excluded individuals. Many of these Jan Dhan accounts are held by small businesses, entrepreneurs, students and self-employed people in rural India, the same folks who are running India’s SMEs. But these accounts have only inflow data, with outflows typically in cash. Even though cash still plays a big role in the self-organized and informal sectors, it’s not easy to provide business-related financing in cash. The so-called JAM trinity (Jan Dhan accounts, Aadhaar digital identities, and Mobile phones) offers a partial solution for this under-banked population, but it only supports what we might think of as consumer-grade applications like basic peer-to-peer payments and individual savings accounts. Access to capital sufficient to finance a business — a true measure of financial inclusion — is still not yet present for these low-income, mostly feature-phone possessing groups.

On the other end of the spectrum from rural SMEs are India’s tech startups. Over the last decade, India has broken into the ranks of global technology and is now the #3 generator of unicorns in the world. Supportive governmental policies, combined with a young, creative, and aspirational workforce has helped reimagine large swathes of the economy including diverse industries such as e-commerce, logistics, SAAS, education, food, healthcare etc. This rise has attracted global equity and loan-funds that could in turn help many start-ups become world beating players in their respective domains. But the startup sector is just as hungry for capital as the rural SMEs, and India’s startup economy is still somewhat disconnected from global venture capitalists and financial markets.

India’s assets: youth, growth, connectivity, and informational collateral

India does have assets with which to close the capital gap. It has a youthful population. It has a fast-growing economy, even given the setbacks of COVID-19. It has an enormous population of hundreds of millions of new internet users. And it has something new, which is the possibility of informational collateral as a sort of combination of traditional concepts of due diligence and physical collateral.

Specifically, the SME funding gap is most pressing for the Indian cash-flow businesses that don’t have the physical assets to take out loans, which are the mainstay of the current, hard-collateral-backed credit system.

One alternative is to use trustworthy digital records to ascertain whether a business is worthy of credit or equity investment. India’s Goods and Services Tax (GST) helps to address this by generating invoice and payment data in a format suitable for credit underwriting and risk analysis. The GST data also enables a small enterprise in a large value system to provide data and visibility across the supply chain; for example, one can track the progress of parts from a small parts supplier to an auto component manufacturer to a large passenger car maker all the way through to distributors, sub-dealers, and retail sales.

The digital version of an SME’s sales and purchase invoices ledger thus amounts to informational collateral on both the company and the larger ecosystem within which it sits, that could become the basis for extending credit, as an alternative to the hard asset or collateral-based financial system. This is similar to how Square Capital and Stripe Capital already function in the West.

In addition to credit-based financing, the trustworthy records furnished by GST’s informational collateral can also support equity or quasi-equity financing, to support growth without increasing debt. These might take the form of direct equity investments in small businesses, or even personal micro-equity investments in individual consultants or students. 

India’s innovation: use new pools of crypto capital to address long-standing financing needs

So, we understand that (a) Indian SMEs need capital, and that (b) IndiaStack’s UPI and Aadhaar can help GST generate informational collateral for potential investors and lenders.


Now the question arises: what class of investors is most willing to use this newfangled type of informational collateral to invest in potentially high-risk businesses outside of the proven venues of America, Europe, East Asia and the large Indian enterprises? Who are the most risk-tolerant, international, forward-looking, class of investors in the world — willing to risk millions of dollars purely on the basis of internet diligence alone?

It may turn out to be the new class of wealthy, globally-minded crypto investors. After all, the 10-year old cryptoeconomy is now worth trillions of dollars, there are more than a hundred million crypto holders around the world, and there are at least fifty crypto protocols valued over one billion dollars, a “unicoin” analog to the traditional tech unicorn. While still small in comparison to global capital markets, a sector worth $2T that is growing at more than 100% per annum could become a much larger piece of the global financial puzzle in short order. This is a new source of risk-tolerant digital capital that could flow into India to help close the SME financing gap, if we can make it an attractive proposition for the global investor.

Specifically, India could offer a viable path to deploy this new crypto wealth in a controlled manner, while solving for SME financial inclusion. Inflows of cryptocurrencies from KYC-ed investors through approved Indian and global exchanges can potentially be allowed into India for the purposes of enhancing SME access to low-cost global capital. GST-registered companies could, for instance, receive capital against their issued e-invoices and other information collateral in special accounts opened via a controlled conduit such as GIFT city, which is one of India’s favored bridges to international markets. The companies benefiting will need to explicitly consent to sharing their information and receiving funds into a new account at system-level while capturing cash flows against invoices for repayment. Inflows of global crypto-capital into Indian SMEs could also enable the rest of the credit system to migrate to informational collateral-based lending. And the special account could eventually be ported to a wallet backed by a national digital currency, such as the proposed digital rupee.

For more detail on this possibility, we invite your attention to Balaji S. Srinivasan’s companion piece on the subject, where he proposes to Add Crypto To IndiaStack. Balaji makes the case for crypto-powered extension of IndiaStack, which broadens IndiaStack from its current mostly domestic remit into an international platform for attracting capital from around the world. He describes several case studies by which the emerging world of decentralized finance or “defi” could help enrich the Indian economy, without competing with the digital rupee. For example, Indian startups could benefit from crypto crowdfunding, Indian SMEs as discussed could access global defi lending pools, and Indian students might even be funded with the emerging concept of personal tokens, like an equity-based version of microfinance. As the former CTO of  Coinbase, the $100B crypto goliath, and a former General Partner at Andreessen Horowitz, the $16B venture capital firm, Balaji’s proposals have technical and social support from the very class of investors we’d seek to attract. At least insofar as they relate to the issue of plugging the SME financing gap, we believe they deserve serious consideration by policymakers in India. 

In short, India has a unique opportunity to close the SME financing gap by attracting the new class of global crypto investors, by using everything the IndiaStack team has helped build over the last decade — particularly UPI, Aadhaar, GST, and the informational collateral they generate —  to help connect the trillion-dollar cryptoeconomy to capital-hungry Indian entrepreneurs.

The blog post is co-authored by Sanjay Phadke, Krishna V Iyer, Pankaj Gupta, Sanjay Jain, Sharad Sharma and Siddharth Shetty.

For any further queries, please write to [email protected]

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The future of ‘civic’ technologies after COVID-19

In 1973, the British economist Ernst Schumacher wrote his manifesto “Small is Beautiful”, and changed the world. Schumacher’s prescription — to use technologies that were less resource-intensive, capable of generating employment, and “appropriate” to local circumstances — appealed to a Western audience that worried about feverish consumption by the ‘boomer’ generation. Silicon Valley soon seized the moment, presenting modern-day, personal computing as an alternative to the tyranny of IBM’s Big Machine. Meanwhile, in India too, the government asked citizens to embrace technologies suited to the country’s socio-economic life. Both had ulterior motives: the miniaturisation of computing was inevitable given revolutions in semiconductor technology during the sixties and seventies, and entrepreneurs in Silicon Valley expertly harvested the anti-IBM mood to offer themselves as messiahs. The government in New Delhi too was struggling to mass-produce machines, and starved of funds, so asking Indians to “make do” with appropriate technology was as much a political message as it was a nod to environmentalism.

And thus, India turned its attention to mechanising bullock carts, producing fuel from bio-waste, trapping solar energy for micro-applications, and encouraging the use of hand pumps. These were, in many respects, India’s first “civic”, or socially relevant technologies.

The “appropriate technology” movement in India had two unfortunate consequences. The first has been a celebration of jugaad, or frugal innovation. Over decades, Indian universities, businesses and inventors have pursued low-cost technologies that are clearly not scaleable but valued culturally by peers and social networks. (Sample the press coverage every year of IIT students who build ‘sustainable’ but limited-use technologies, that generate fuel from plastic or trap solar energy for irrigation pumps.) Second, the “small is beautiful” philosophy also coloured our view of “civic technologies” as those that only mobilise the citizenry, out into farms or factory floors. Whether they took the form of a hand pump, solar stove or bullock cart, these technologies did little to augment the productivity of an individual. However, they preserved the larger status quo and did not disrupt social or industrial relations as technological revolutions have historically done. 

Nevertheless, there has always been a latent demand in India for technologies that don’t just mobilise individuals but also act as “playgrounds”, creating and connecting livelihoods. When management guru Peter Drucker visited post-Emergency India in 1979, Prime Minister Morarji Desai sold him hard on “appropriate technology”. India, Drucker wrote, had switched overnight from championing big steel plants to small bullock carts. Steel created no new jobs outside the factory, and small technologies did not improve livelihoods. Instead, he argued, India ought to look at the automotive industry as an “efficient multiplier” of livelihoods: beyond the manufacturing plant, automobiles would create new sectors altogether in road building and maintenance, traffic control, dealerships, service stations and repair. Drucker also pointed to the transistor as another such technology. Above all, transistors and automobiles connected Indians to one another through information and travel. Drucker noted during his visit that the motor scooter and radio transistor were in great demand in even far-flung corners, a claim that is borne by statistics. These, then were the civic technologies that mattered, ones that created playgrounds in which many could forge their livelihoods. 

The lionisation of jugaad is an attitudinal problem, and may not change immediately. But the task of creating a new generation of civic technologies that act as playgrounds can be addressed more readily.  In fact, it is precisely during crises such as the ongoing COVID-19 pandemic that India acutely requires such platforms.


Consider the post-lockdown task of economic reconstruction in India, which requires targeted policy interventions. Currently, the Indian government is blinkered to address only two categories of actors who need economic assistance: large corporations with their bottom lines at risk, and at the micro-level, individuals whose stand to lose livelihoods. India’s banks will bail out Big Business, while government agencies will train their digital public goods — Aadhaar, UPI, eKYC etc — to offer financial assistance to individuals. This formulaic approach misses out the vast category of SMEs who employ millions, account for nearly 40% of India’s exports, pull in informal businesses into the supply chain and provide critical products to the big industries.

To be sure, the data to identify SMEs (Income Tax Returns/ GSTN/ PAN) exists, as do the digital infrastructure to effect payments and micro-loans. The funds would come not only from government coffers but also through philanthropic efforts that have gained steam in the wake of the pandemic. However, the “playground” needs to be created — a single digital platform that can provide loans, grants or subsidies to SMEs based on specific needs, whether for salaries, utilities or other loan payments. A front-end application would provide any government official information about schemes applied for, and funds disbursed to a given SME.

Civic technologies in India have long been understood to mean small-scale technologies. This is a legacy of history and politics, which policymakers have to reckon with. The civic value of technology does not lie in the extent to which it is localised, but its ability to reach the most vulnerable sections of a stratified society like India’s. The Indian government, no matter how expansive its administrative machinery is, cannot do this on its own. It has to create “playgrounds” — involving banks, cooperative societies, regulators, software developers, startups, data fiduciaries and underwriting modellers — if it intends to make digital technologies meaningful and socially relevant.  

Please Note: A version of this was first published on Business Standard on 17 April 2020

About the author: Arun Mohan Sukumar is a PhD candidate at the Fletcher School, Tufts University, and a volunteer with the non-profit think-tank, iSPIRT. He is currently based in San Francisco. His book, Midnight’s Machines: A Political History of Technology in India, was published by Penguin Random House in 2019

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A Great Leap Forward to Transform Fintech: Data Empowerment

India is one of the first nations in the world to kick off Open APIs for consented financial data sharing. And nobody’s heard about it! 

Dear Kickass Financial Product Managers and (current & future) Fintech Entrepreneurs,

Amidst the usual flurry of sensational headlines, you may have missed a quiet announcement a few weeks ago that marked a monumental shift: RBI became the first central bank globally to publish a common technology framework – including detailed APIs – for consent driven data sharing across the entire financial sector (banking, insurance, securities, and investment).

This is a gamechanger for the industry.

Out of context, yet another circular with a good deal of jargon is an easy thing to gloss over. But it turns out this effort is actually a global first: although the UK, EU, Bank of International Settlements (BIS), Canada, and others have begun thoughtful public conversations around Open Banking (e.g. through that famous BIS report making the case, initiatives like PSD2, conferences, and various committees), India is one of the first nations in the world to actually make it a market reality by publishing detailed technical API standards — standards that are quickly being adopted by major banks and others across the financial sector in the country without a mandatory requirement from RBI. It’s not just the supposedly cutting edge banks of Switzerland, the UK, or the US driving fintech innovation: the top leadership of our very own SBI, ICICI, IDFC First, Bajaj Finserv, Kotak, Axis, and other household names have recognised that this is the way forward for the industry, and are breaking through new global frontiers by actually operationalising the powerful interoperable technology framework. Not only are they adopting the APIs, some are also starting to think through the new lending and advisory use cases and products made possible by the infrastructure. We think many new fintech startups should also be considering doing the same.

Why do the APIs Matter?

The world is focusing heavily on data protection and privacy – and rightly so. Securing data with appropriate access controls and preventing unauthorised third-party sharing is critical to protecting individual privacy. But to a typical MSME, portability and control of their data is just as critical as data security to empower them with access to a stream of new and tailored financial products and services. For instance, if an MSME owner could share trusted proof of their business’ regular historic GST payments or receivables invoices digitally with ease, a bank could now offer regular small ticket working capital loans based on demonstrated ability to repay (known as Flow-based lending) rather than just loans backed on collateral. Data sharing can become a tool for individual empowerment and prosperity by enabling many such innovative new solutions.

Operationalising a seamless and secure means to share data across different types of financial institutions – banks, NBFCs, mutual funds, insurance companies, or brokers – requires a common technology framework for data sharing. The published APIs create interoperable public infrastructure (a standard ‘rails’) to be used for consented data sharing across all types of financial institutions. This means that once a bank plugs into the network as an information provider, entities with new use cases can plug in as users of that data without individually integrating with each bank. Naturally, the system is designed such that data sharing occurs only with the data owner’s consent — to ensure that data is used primarily to empower the individual or small business. The MeiTY Consent Framework provides a machine-readable standard for obtaining consent to share data. This consent standard is based on an open standard, revocable, granular (referring to a specific set of data), auditable, and secure. Programmable consent of this form is the natural next innovation of the long terms and conditions legalese that apps typically rely on. RBI has also announced a new type of NBFC – the Account Aggregator – to serve as a consent dashboard for users, and seven new AAs already have in principle licenses. 

The Data Empowerment and Protection Architecture (DEPA) – in one image

In many other nations, market players have either not been able to come together to agree on a common technical standard for APIs, or have not been able to kick off its adoption across multiple competing banks at scale and speed. In countries like the US, data sharing was enabled only through proprietary rails – private companies took the initiative to design their own infrastructure for data sharing which end up restricting players like yourselves from innovating to design new products and services which could benefit people on top of the infra. 

What other kinds of innovative products and services could you build? 

Think of the impact that access to the Google Maps APIs allowed: without them, we would never have seen startups like Uber or Airbnb come to life. Building these consented data sharing APIs as a public good allows an explosion of fintech innovation, in areas such as:

  • New types of tailored flow-based lending products that provide regular, sachet sized loans to different target groups based on GST or other invoices (as described above). 
  • New personal financial management apps which could help consumers make decisions on different financial institutions and products (savings, credit, insurance, etc.) based on historic data and future projections. This could also branch out into improved wealth management or Robo advisory. 
  • Applications that allow individuals to share evidence of financial status (for instance, for a credit card or visa application) without sharing a complete detailed bank statement history of every transaction

…and many others, such as that germ of an idea that’s possibly started taking shape in your mind as you were reading.

In summary

This ecosystem is where UPI was in mid-2016: with firm, interdepartmental, and long term regulatory backing, and at the cusp of operationally taking off. UPI taught us that those who make a bet on the future, build and test early (PhonePe and Google were both at the first ever UPI hackathon!), and are agile enough to thrive in an evolving landscape end up reaping significant rewards. And just as with UPI, our financial sector regulators are to be lauded for thinking proactively and years ahead by building the right public infrastructure for data sharing. RBI’s planning for this began back in 2015! They have now passed the innovation baton onto you — and we, for one, have ambitious expectations.

With warmest regards,

iSPIRT Foundation

I’m Pinging A Few Whatsapp Groups Now, What Else Should I Send Them To Read? 

For any further questions or queries, please reach out to [email protected] and [email protected]

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Fireside Chat: Vinod Khosla and Nandan Nilekani in Conversation with Sharad Sharma

Join us for a conversation with Vinod Khosla and Nandan Nilekani. Together with Sharad Sharma, our fireside chat host, they will talk about what it means to be an entrepreneur in India today and how these entrepreneurs can solve the hardest problems of India.

Vinod Khosla and Nandan Nilekani are arguably two of the most influential thinkers and innovators of our time when it comes to transformation, entrepreneurship, and large scale impact. Born within 6 months of each other, both graduated for IITs, created iconic companies, become billionaires in the in aprocess and continue to innovate and transform the world.

What better opportunity than to hear these icons of industry at a fireside chat discussing the most intriguing aspects of startups, entrepreneurship, digital transformation and India’s growth towards a multi trillion dollar economy.

About Mr. Vinod Khosla

Vinod Khosla is the founder of Khosla Ventures, a premier Silicon Valley venture capital firm, and a member of the 2018 Midas List. His firm, Khosla Ventures, invests in a wide variety of startups ranging from Healthcare, Sustainable Energy, Food/Agriculture to Space, AI and Robotics. He co-founded Sun Microsystems in 1982 after which he spent 18 years at venture capital firm Kleiner Perkins Caufield & Byers before launching his own fund.

About Mr. Nandan Nilekani

Nandan Nilekani is the co-founder of tech giant Infosys and currently back as a non-executive chairman affecting a remarkable turnaround. In 2009, he was made a Cabinet Minister and Chairman of UIDAI – India’s mammoth National ID project – Aadhaar.  After Aadhaar, Nandan has actively supported India’s digital transformation through the IndiaStack initiatives in payments, digital locker, eSignature and other services. Nandan has also backed startups in the India ecosystem.

About Mr. Sharad Sharma

Sharad Sharma is the co-founder of iSPIRT and has worn many hats as CEO of Yahoo India R&D, Chair of NASSCOM Product Forum and as intrapreneur at AT&T. He is a passionate evangelist and an active investor in the software product ecosystem in India.

When?

2nd of August, 2019 from 18:00 – 19:30 hrs.
Venue to be disclosed. 

How to participate?

You can be a part of this Fireside Chat by registering here. Confirmed participants will be intimated by the 28th of July via email. 

Please note, due to limited seating at the venue we will not be able to accommodate everyone who applies.

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Data Empowerment and Protection Architecture Explained – Video

More commonly known as the ‘Consent Layer of the India Stack’, Data Empowerment and Protection Architecture (DEPA) is a new approach, a paradigm shift in personal data management and processing that transforms the currently prevalent organization-centric system to a human-centric system. By giving people the power to decide how their data can be used, DEPA enables the collection and use of personal data in ways that empower people to access better financial, healthcare, and other socio-economically important services in a safe, secure, and privacy-preserving manner.

It gives every Indian control over their data, democratizes access and enables the portability of trusted data between service providers. This architecture will help Indians in accessing better financial services, healthcare services, and other socio-economically important services.The rollout of DEPA for financial data and telecom data is already taking place through Account Aggregators that are licensed by RBI. It covers all asset data, liabilities data, and telecom data.

We, at iSPIRT, organised a learning session on the 18th of May, to give relevant and interested stakeholders a detailed primer on DEPA. We had 60-odd very animated and engaging people in the audience. The purpose of the session was to understand the technological, institutional, market and regulatory architecture of DEPA, it impacts on existing data consuming businesses and how people could contribute to this new data sharing infrastructure that’s being built in India.

The session was anchored by Siddarth Shetty, Data Empowerment And Protection Architecture Lead & Fellow, iSPIRT Foundation (Email – sid@ispirt.in). Please feel free to reach out to him for any queries regarding DEPA.

For other queries, please write to [email protected].

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#2 Federated Personal Health Records – The Quest For Use Cases

Last week we wrote about India’s Health Leapfrog and the role of Health Stack in enabling that (you can read it here). Today, we talk about one component of the National Health Stack – Federated Personal Health Records: its design, the role of policy and potential use cases.

Overview

A federated personal health record refers to an individual’s ability to access and share her longitudinal health history without centralised storage of data. This means that if she has visited different healthcare providers in the past (which is often the case in a real life scenario), she should be able to fetch her records from all these sources, view them and present them when and where needed. Today, this objective is achieved by a paper-based ‘patient file’ which is used when seeking healthcare. However, with increasing adoption of digital infrastructure in the healthcare ecosystem, it should now be possible to do the same electronically. This has many benefits – patients need not remember to carry their files, hospitals can better manage patient data using IT systems, patients can seek remote consultations with complete information, insurance claims can be settled faster, and so on. This post is an attempt to look at the factors that would help make this a reality.

What does it take?

There are fundamentally three steps involved in making a PHR happen:

  1. Capture of information – Even though a large part of health data remains in paper format, records such as diagnostic reports are often generated digitally. Moreover, hospitals have started adopting EMR systems to generate and store clinical records such as discharge summaries electronically. These can act as starting points to build a PHR.
  2. Flow of information- In order to make information flow between different entities, it is important to have the right technical and regulatory framework. On the regulatory front, the Personal Data Protection Bill which was published by MeitY in August last year clearly classifies health records as sensitive personal data, allows individuals to have control over their data, and establishes the right to data portability. On the technical front, the Data Empowerment and Protection Architecture allows individuals to access and share their data using electronic consent and data access fiduciaries. (We are working closely with the National Cancer Grid to pilot this effort in the healthcare domain. A detailed approach along with the technical standards can be found here.)
  3. Use of information – With the technical and regulatory frameworks in place, we are now looking to understand use cases of a PHR. Indeed, a technology becomes meaningless without a true application of it! Especially in the case of PHR, the “build it and they will come” approach has not worked in the past. The world is replete with technology pilots that don’t translate into good health outcomes. We, in iSPIRT,  don’t want to go down this path. Our view is that only pilots that emerge from a clear focus on human-centred design thinking have a chance of success.

Use cases of Personal Health Records

Clinical Decision Making

Description: Patient health records are primarily used by doctors to improve quality of care. Information about past history, prior conditions, diagnoses and medications can significantly alter the treatment prescribed by a medical professional. Today, this information is captured from any paper records that a patient might carry (which are often not complete), with an over-reliance on oral histories – electronic health records can ensure decisions about a patient’s health are made based on complete information. This can prove to be especially beneficial in emergency cases and systemic illnesses.

Problem: The current fee-for-service model of healthcare delivery does not tie patient outcomes to care delivery. Therefore, in the absence of healthcare professionals being penalised for incorrect treatment, it is unclear who would pay for such a service; since patients often do not possess the know-how to realise the importance of health history.

Chronic Disease Management

Description: Chronic conditions such as diabetes, hypertension, cardiovascular diseases, etc. require regular monitoring, strict treatment adherence, lifestyle management and routine follow-ups. Some complex conditions even require second opinions and joint decision-making by a team of doctors. By having access to a patient’s entire health history, services that facilitate remote consultations, follow-ups and improve adherence can be enabled in a more precise manner.

Problem: Services such as treatment adherence or lifestyle management require self-input data by the patient, which might not work with the majority. Other services such as remote consultations can still be achieved through emails or scanned copies of reports. The true value of a PHR is in providing complete information (which might be missed in cases of manual emails/ uploads, especially in chronic cases where the volume and variety of reports are huge) – this too requires the patient to understand its importance.

Insurance

Description: One problem that can be resolved through patient records is incorrect declaration of pre-existing conditions, which causes post-purchase dissonance. Another area of benefit is claims settlement, where instant access to patient records can enable faster and seamless settlement of claims. Both of these can be use cases of a patient’s health records.

Problem: Claim settlement in most cases is based on pre-authorisation and does not depend solely on health records. Information about pre-existing conditions can be obtained from diagnostic tests conducted at the time of purchase. Since alternatives for both exist, it is unclear if these use cases are strong enough to push for a PHR.

Research

Description: Clinical trials often require identifying the right pool of participants for a study and tracking their progress over time. Today, this process is conducted in a closed-door setting, with select healthcare providers taking on the onus of identifying the right set of patients. With electronic health records, identification, as well as monitoring, become frictionless.

Problem: Participants in clinical trials represent a very niche segment of the population. It is unclear how this would expand into a mainstream use of PHR.

Next steps

We are looking for partners to brainstorm for more use cases, build prototypes, test and implement them. If you work or wish to volunteer in the Healthtech domain and are passionate about improving healthcare delivery in India, please reach out to me at [email protected].

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#1 India’s Health Leapfrog – Towards A Holistic Healthcare Ecosystem

In July 2018, NITI Aayog published a Strategy and Approach document on the National Health Stack. The document underscored the need for Universal Health Coverage (UHC) and laid down the technology framework for implementing the Ayushman Bharat programme which is meant to provide UHC to the bottom 500 million of the country. While the Health Stack provides a technological backbone for delivering affordable healthcare to all Indians, we, at iSPIRT, believe that it has the potential to go beyond that and to completely transform the healthcare ecosystem in the country. We are indeed headed for a health leapfrog in India! Over the last few months, we have worked extensively to understand the current challenges in the industry as well as the role and design of individual components of the Health Stack. In this post, we elaborate on the leapfrog that will be enabled by blending this technology with care delivery.

What is the health leapfrog?

Healthcare delivery in India faces multiple challenges today. The doctor-patient ratio in the country is extremely poor, a problem that is further exacerbated by their skewed distribution. Insurance penetration remains low leading to out-of-pocket expenses of over 80% (something that is being addressed by the Ayushman Bharat program). Additionally, the current view on healthcare amongst citizens as well as policymakers is largely around curative care. Preventive care, which is equally important for the health of individuals, is generally overlooked.  

The leapfrog we envision is that of public, precision healthcare. This means that not only would every citizen have access to affordable healthcare, but the care delivered would be holistic (as opposed to symptomatic) and preventive (and not just curative) in nature. This will require a complete redesign of operations, regulations and incentives – a transformation that, we believe, can be enabled by the Health Stack.

How will this leapfrog be enabled by the Health Stack?

At the first level, the Health Stack will enable a seamless flow of information across all stakeholders in the ecosystem, which will help in enhancing trust and decision-making. For example, access to an individual’s claims history helps in better claims management, a patient’s longitudinal health record aids clinical decision-making while information about disease incidence enables better policymaking. This is the role of some of the fundamental Health Stack components, namely, the health registries, personal health records (PHR) and the analytics framework. Of course, it is essential to maintain strict data security and privacy boundaries, which is already considered in the design of the stack, through features like non-repudiable audit logs and electronic consent.

At the second level, the Health Stack will improve cost efficiency of healthcare. For out-of-pocket expenditures to come down, we have to enable healthcare financing (via insurance or assurance schemes) to become more efficient and in particular, the costs of health claims management to reduce. The main costs around claims management relate to eligibility determination, claims processing and fraud detection. An open source coverage and claims platform, a key component of the Health Stack, is meant to deal with these inefficiencies. This component will not only bring down the cost of processing a claim but along with increased access to information about an individual’s health and claims history (level 1), will also enable the creation of personalised, sachet-sized insurance policies.

At the final level, the Health Stack will leverage information and cost efficiencies to make care delivery more holistic in nature. For this, we need a policy engine that creates care policies that are not only personalized in nature but that also incentivize good healthcare practices amongst consumers and providers. We have coined a new term for such policies – “gamifier” policies – since they will be used to gamify health decision-making amongst different stakeholders.

Gamifier policies, if implemented well, can have a transformative impact on the healthcare landscape of the country. We present our first proposal on the design of gamifier policies, We suggest the use of techniques from microeconomics to manage incentives for care providers, and those from behavioural economics to incentivise consumers. We also give examples of policies created by combining different techniques.

What’s next?

The success of the policy engine rests on real-world experiments around policies and in the document we lay down the contours of an experimentation framework for driving these experiments. The role of the regulator will be key in implementing this experimentation framework: in standardizing the policy language, in auditing policies and in ensuring the privacy-preserving exchange of data derived from different policy experiments. Creating the framework is an extensive exercise and requires engagement with economists as well as computer scientists. We invite people with expertise in either of these areas to join us on this journey and help us sharpen our thinking around it.

Do you wish to volunteer?

Please read our volunteer handbook and fill out this Google form if you’re interested in joining us in our effort to develop the design of Health Stack further and to take us closer to the goal of achieving universal and holistic healthcare in India!

Update: Our volunteer, Saurabh Panjawani, author of gamifier policies, recently gave a talk at ACM (Association for Computing Machinery)/MSR (Microsoft Research) India’s AI Summit in IIT Madras! Please view the talk here: https://www.microsoft.com/en-us/research/video/gamifier-policies-a-tool-for-creating-a-holistic-healthcare-ecosystem/

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Build On IndiaStack – Venture Pitch Competition

Announcing ‘Venture Pitch Competition: #BuildOnIndiaStack’

Dalberg and iSPIRT invite applications from early-stage ventures that are tech-
based solutions leveraging the India Stack platform at the core of their business
model to bring financial or transactional services to the underserved in India.
Pitch to some of the leading investors and thinkers in the Indian start-up ecosystem,
including the Bharat Innovations Fund, Omidyar Network and Unitus Seed Fund.
Winners will spend an hour of 'Think Time' – a mentorship session with
technology evangelist Nandan Nilekani.

Who are we looking for?

We are open to all innovations that use the India Stack to unlock new business
models or reach previously underserved new customer segments across sectors
such as financial services, education, healthcare and others. Some core focus areas
for the competition may include digital lending and supporting activities, such as
alternative credit scoring; sector specific affordable digital finance services such as
health insurance or education loans; sector specific digital services such as skilling
and certification, property registration agreements, patient-centric healthcare
management; and SaaS platforms “as a service” that support the development of
other India Stack based innovations such as Digi-locker or e-sign providers.

 

Who is eligible?
All applicants should:
1. Meet the 3-point criteria: tech enabled, leveraging India Stack Platform and
serving the underservedBe

2. Be a part of two (minimum) to four (maximum) members team including the
founder of the companyBe early stage start-ups that have received only seed (or limited angel)

3. Be early stage start-ups that have received only seed (or limited angel)
funding, if at all

 
What is in it for you?
The investor group, comprising of Bharat Innovations Fund, Omidyar Network and
Unitus Seed Fund, is a network of investors and operators, entrepreneurs and
technologists, designers and engineers, academicians and policy makers, with the
singular mission to solve some of India’s toughest problems.

Through this event you have an opportunity to receive:

-Exclusive focus on tech innovations that leverage the India Stack platform
and have the potential to address the underservedFlexible

-Flexible, insight driven, funding of up to Rs. 8 lakhs for early stage, innovative
modelsStrategic

-Strategic business support, through their specialists to support investees in
their strategy and growthA chance to be a part of the India Stack ecosystem through partnerships,

-A chance to be a part of the India Stack ecosystem through partnerships,
pilots, workshops, conferences and network building exercises

Visit www.buildonindiastack.in and send your pitch now.

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Disruption of Chit Funds and the Role of the India Stack.

Disruption of Chit Funds and the Role of the India Stack

Chit Funds are indigenous financial institutions in India. It is a mechanism that combines credit and savings in a single scheme. In a chit fund scheme, a group of individuals come together for a predetermined time period and contribute to a common pool at regular intervals. Every month, up until the end of the tenure of the scheme, the collected pool of money is loaned out internally through a bidding mechanism to the most deserving member. This way, people who are in need of funds and those who want to save are able to meet their requirements. Similar schemes have been known to be popular across the developing world, generally referred to as Rotating Saving and Credit Associations (ROSCA)

An interesting aspect of Chit Funds in India is that the industry is highly regulated and institutionalized. A Chit Fund can be either “registered” or “unregistered”. Registered Chit funds are organized by Chit Fund firms/companies and regulated by the Chit Fund Act. They are in essence impersonal contracts that depend on market forces. Unregistered Chit Funds which exceed Rs. 100 ($2) in chit value are illegal in India, although it is widely known that the unregistered Chit Funds industry is still very popular.

While no official or government estimates of the industry exist, The All India Chit Fund Association estimates that “the size of industry is Rs 35,000 crore, with the unregistered part estimated to be at least 100 times the registered one”

Value to the consumer

Prof Mary Kay Gugerty, in her paper, “You Can’t Save Alone: Commitment in Rotating Savings and Credit Associations in Kenya” argues that, “saving requires self-discipline, and ROSCAS provide a collective mechanism for individual self-control in the presence of time-inconsistent preferences and in the absence of alternative commitment technologies”

This conclusion, although based in data from Kenya, is also supported by the data collected in India, which suggests that 72.1% of consumers participate in chit funds(Estimate of Chit Fund Industry size) to save.  While 95% of these consumers have bank accounts(Reason for Chit participation : Table 3-7), they still prefer chit funds as a saving mechanism due to higher perceived returns, paperless documentation(Banking Details : Table 3-4), familiarity and doorstep service.

While the actual rate of returns (for savers) and cost of borrowing are highly variable based on a given fund, on average(Reason for participating in Chit Funds : Table 3-11) 6%-42% per annum(Rate of return calculated based on the cost of borrowing, assuming 5% commision, 10 people, Rs 10,000 chit fund and 1 borrower plus 9 savers. Cost of borrowing from Table 5-4 Outside Options – Interest Rates for Loans,)

Housewives and Small business owners are the two most prominent cohorts within the chit fund users(Figure 3-1  Frequency of Occupation based on Gender). Daily chits are popular with small business owners, presumably because it allows them to manage their daily cash flow and allows control over their interest rate when the need for a loan arises(Section 9, Chit funds and Small Business, Para 3).

The chit funds are also perceived to be liquid, Most consumers bid to get the pot when they had an emergency need or when an lucrative business investment came about(Reason for participating in Chit Funds : Table 3-11).

Finally 96% of chit members overall think that the Chit Funds they participate in are safe and about 85% of these chit members are loyal to fund company they are participating in.

Legal framework for Chit Funds

The Government of India passed the Chit Fund Act in 1982, with implementation of the Act left to the Registrar of Chit Funds in each state. This Act, it is relevant to note, contains many restrictions like a minimum Capital requirement (Section 8), prohibition of transacting business other than Chit Business (Section 12), a ceiling on the aggregate chit amount which is 10 times of the net-owned funds (Section 13), Utilization of funds (Section 14), security to be given for full value of chit (Section 20), a self-contained machinery for settlement of disputes etc and a number of penal provision for various defaults(All India Chit Funds Association submission to parliamentary committee), etc.. Notably there are stringent requirements on written formalities like notice to the customer, minutes of the meeting, record keeping and audit by certified chartered accountant(6(1), 15, 35, 40-Chit Agreement, 22(2)- Intimation to Registrar of deposits, 26(1), 34(1) Withdrawal of foreman 28(1) Removal of defaulting subscribers 33(1) Demand note 38(1) Minutes of the meeting).

The regulatory hurdles that the chit companies face due to the stringent rules proposed by the Government progressively, have been a setback to the growth of the industry. The effect of the increased costs of operations for the registered chit companies has been to push these companies ’underground’. Many companies have, in the recent past, either folded up or shifted their operations entirely to the informal arena becoming an ’unregistered’ chit fund(Chit Funds Boon to Small Enterprise).

Economics of running a Chit Fund

Apart from the capital and compliance requirements highlighted above, the key risk of running a chit fund is default. The default rates in the chit industry hover around a meager 1-2%. This is because the chit members are, in most cases, personally known to the chit managers(Section 5, Defaults How are they handled ? – Chit Funds Boon to Small Enterprises). Also,  Defaulters are sanctioned socially as well as being prevented from any further participation(Page 794, Paragraph 2, Economics of Rotating Saving and Credit Associations).

The key source of revenue for a Chit fund manager is commission which is capped at 5%. Alternatively the chit fund managers take the first installment in full. The chit manager can also generate revenue from float interest charges i.e. by disbursing the loan a month after the money is collected, he can earn the interest on the full amount(Section 7 : Sources of Income to the Chit Manager) 

Role of the India Stack

With the size and scope of the chit fund industry, as outlined above, it is clear that there is a large addressable market for innovators. What makes this opportunity more lucrative is the presence of India Stack. India Stack is set of technologies (primarily Aadhaar authentication, e-KYC, e-Sign, Digital locker and UPI) that together dramatically reduce the cost of transactions. For example, an analysis on the Mutual funds business indicated that by use of India stack, the  average transaction cost would drop from Rs 50 to Rs 2, making it viable for Mutual funds to go after the small ticket business.

Opportunities for Start Ups

Given the background above, following is the most promising opportunity for startups:

Organize the unregistered chit fund companies

  1. Hypothesis: With the recent crackdown on black money and tax evasion, it will become more difficult to run unregistered chit funds circumventing the law. This will give the unregistered chit funds incentive to become registered and follow the law
  2. Product: An easy platform that allows management of chit funds through mobile phone app/apps and make it compliant with the law
  3. Key Customers :  Unregistered chit funds
  4. Key Stakeholders : State Government, Unregistered Chit Funds, Users of chit funds
  5. Key activities:
    1. Build technology based on India Stack to meet KYC requirements, sign chit agreements using e-sign, transfer money between people using UPI and keep an account.
    2. Strong sales network to bring the chit funds onboard
    3. Product and legal expertise to liaison with the state governments and registered chit funds to build products that meets all requirements
  6. Need for funding:
    1. Initial product could be built with a relatively small investment
    2. Scaling with scale will likely need venture investments (but no access to large capital should be needed)
  7. Revenue generating activity:
    1. Pay per instance or per user from the funds
    2. Lead generation for Chartered Accountants
    3. Aggregate data reports could be sold
    4. Could also build a government facing interface for monitoring
  8. Competitive Advantage:
    1. No real competition at this point
    2. Network effects could become significant advantage
    3. Implicit or explicit endorsement from Government agencies
  9. Key Risks:
    1. Product adoption risk: The success of the idea is hinged on pressure from government creating the need, which drives adoption. In the absence which it will be significantly harder to move people from the familiar. The risk is somewhat contained because of a supreme court order directing government to act on this.
    2. Regulation risk: A parliamentary committee has recommended that the government revise the regulation. This means that government could do away with a number of provisions, making compliance much easier of chit funds thus eliminating the need for such a company. Again this is low likelihood event given the scrutiny on this sector
    3. Reputation risk: The company will have to be careful not to associate with chit funds with malicious intents. Being associated could result in penalties and damage to reputation.

Guest Post by Kunal Kashyap, IIT KGP graduate, Spent 8 years at Capital One, a US based Fortune 100 Fintech company. Volunteer for iSPIRT.  

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How UPI is more convenient & secure than what most people think

A phenomenon that has been pretty popular recently in the news goes by the name of UPI (Unified Payments Interface). However, most people have not been able to experience the revolution and the magic moment that comes along when paying via it. Part of that stems from the myths that keep floating around, regarding how it might not be that secure and worthwhile. Well, allow me to put all of these doubts at ease through this post.

Let us take all the salient features of UPI one by one – 

Bye-bye long account numbers and IFSC codes

Convenience factor

Now, there is no need to ask anyone for their account numbers or IFSC codes when sending or receiving money. Apart from the fact that remembering long account numbers and IFSC codes is cumbersome, entering those on a small screen / app is painful (especially considering that the user experience of banking websites and apps is mostly terrible). 

Of course, the question is now what replaces these 2 if they are not in the picture any more. Say hello to virtual address (which looks like sunnyrohit@ybl where the first part is a unique ID set by you and the second part is determined by the bank/app which processes your payments). This virtual address is automatically mapped to your bank account by NPCI when you register for the first time.

Security factor

The first thing to observe is that since you no longer need to share your account details (Number and IFSC code) with anyone, hence they are completely hidden from everyone else.

Secondly, what this process does is that it takes your user level identification to a more abstract level where the virtual address (or in our case – mobile number) becomes the key information to know or share with anyone. And sharing it is completely harmless as a common person cannot extract any info from that.

Send and receive money instantly, 24*7 and even on a holiday

Convenience factor

Needless to say that this is a game changer, especially in this new economy where demonetization has brought cash to a near standstill and banks/ATMs are clogged up. Not to mention that when sending / receiving money, we don’t even need to think what day and time it may be.

Security factor

Actually, UPI is built on the existing layer of IMPS (Immediate payment service) which has been running smoothly since 2010. Hence, the key thing to note here is that the basic security concepts have stood the test of time for 6 years now. Not to mention that they have improved along the way and many more locks as well as checks have been added on top.

Linked exclusively to your mobile device

Convenience factor

This is a no brainer as everybody has their personal mobile with them 24×7. And it is also the first device that we think of nowadays when receiving / sharing anything on a speedy basis.

Also not to worry, you can link multiple bank accounts as well with the same virtual address. As well as un-link / delete account at any point of time.

Security factor

Firstly, it is important to remember that your virtual address gets mapped to your device exclusively. Now couple this with the fact that for making any payment (peer to peer and peer to merchant), you need to enter your M-pin (a secure 6 digit pin set by you for the first time), and then you can see how it is a perfect closed loop.

Even if anybody gets hold of your device, they cannot do anything until or unless they have your M-pin. Similarly, for resetting your M-pin, you would need your debit card details (completely separate from your device information for security reasons)

No minimum amount. A single user can do 5 transactions totalling up to Rs. 1 Lac daily

Convenience factor

Taking all common scenarios, a total amount of Rs. 1 lac is good enough to cover all your daily needs be it online / offline. And again the number of transactions can easily be covered within the limit of 5 per person. Hence, yay to good lifestyle needs!

Security factor

These velocity checks also ensure that nobody can wipe out or cause any major havoc in anyone’s bank account (although as we discussed, the chances of any data compromise are next to nothing).

Also, remember that all these aspects and features are valid for non-banking UPI apps (like ours) that have partnered with a bank or individual bank’s UPI apps as well

In today’s age of lightning speed information and open access, keep no room for confusions or myths in your life. It is time to embrace the change and be a part of a much more awesome and well-built economic infrastructure via UPI.

Guest Post by Rohit Taneja, Mypoolin, @sunnyboyrohit

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The Kaysh-less Economy

the-kaysh-less-economy

The November 8th announcement of demonetization of Rs 500 and Rs 1000 notes by Prime Minister Modi caught everyone by surprise. That was the intent. It is, however, widely expected that bank accounts, plastic cards and digital money usage will increase dramatically in the next 12 months. In other words, India will be pushed towards a cashless economy. The purpose of this piece however isn’t about the probability of a cashless economy happening; It is about the definite opportunity presented by the Indian kaysh-less economy. That is, the economy resulting from the removal of hair from people’s heads. India has been going kaysh-less for millennia. It is our kaysh that adorns the heads of Western celebrities like Lady Gaga, Beyonce, Naomi Campbell and any “Hollywood who’s been a mile of a first class weave” according to Mother Jones. It is Indian kaysh – renowned for its length, quality and strength – that is most prized in the making of wigs, weaves and hair extensions (“dry hair”) used by women in the West.

Annually, India exports about 1,300 tons of hair- 80 per cent of the world’s supply – contributing to about US$400 million in revenues and employing thousands in the collecting, cleaning and sorting activities. Our temples sell the best quality hair – 20-30 per cent of all hair is harvested in temples – while barber shops and women’s combs and garbage bins generate the rest. Temple towns like Tirupati in Andhra and Palani in Tamil Nadu are on the world map for their hair exports. In 2013, Tirupati alone generated Rs 200cr from e-auctioning of 106 tons of hair; 25,000 heads are shaved daily in Tirupati where over 600 hairdressers are employed including 50 female barbers. Rural women who get their heads tonsured have prized natural long hair because it is uncontaminated by shampooing and styling chemicals. The significantly less lucrative shorter men’s hair on the other hand is mostly for industrial use eg stuffing clothes, fertilizers and for extracting L-cysteine, an amino acid. It is worth noting that this acid is used in pizza dough and bakery products so spare a thought the next time you bite into pizza and actually find hair in it.

Indian hair is closest to Caucasian hair and is the most heavily priced thanks to it being “remy” ie single cut and orientation of the cuticle. The remy hair from India goes largely to the US and Europe while the non-remy hair goes to China.

The Indian kaysh-less economy can be a global multi-billion dollar market opportunity; Interestingly, Africa alone offers a US$6billion opportunity that Indian companies can target. If only we considered it as such and, instead of just being a supplier of the primary commodity, got into the higher value-added products of branded dry hair. Instead, even in kaysh, like most things that originate in India, someone else is actually harvesting the serious cash! China, on the other hand, generates $2billion from its supplying dry hair products by partly using Indian non-remy kaysh!

India’s domestic kaysh-less economy – as a leading supplier of the best quality human hair – can provide a very lucrative cash generating opportunity for Indian beauty and wellness companies.

With 1.25billion people, India’s original kaysh-less economy isn’t an hairy-fairy business; It is hair today and definitely not gone tomorrow. The country needs a Big Hairy Audacious Goal. All we have to do is say, “hair! Hair!” to that. Will we?

 

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iSPIRT & the India Stack pilot – commercialization of techno-creative innovations

iSPIRT invited select companies to leverage the IndiaStack API’s and collaboratively construct a pilot program, as a demonstrable proof of concept.

Broadly, the pilots were established to transfer the invented technologies and expertise to the market. In addition to creating sufficient and supportive infrastructure for technology transfer; to embolden entrepreneurs and businesses create profits based on intellectual property generated from these innovations, our pilot learnings were needed to help effectively address government, regulators and public institutions to seek their support for policy recommendations made by iSPIRT.

More specifically, the belief at iSPIRT was that for successful new technology venture, entrepreneurs and businesses should possess a combination of learning experiences, knowledge, self-confidence and skills to face challenges in various stages of commercialization process.

All participants to the pilot were carefully selected by examining their current business models, abilities to contribute to all aspects of IndiaStack, coexistence in a non-competing frame, investing in own resources (costs, effort, time) and above all for demonstrating their PASSION for technology and BELIEF that they will transform INDIA’s landscape for its people and businesses.

This pilot would not have been possible without the kind support and help of many individuals and organizations. iSPIRT is highly indebted to Khosla Labs for providing AUA, KUA services for free. eMudhra for being our eSign service provider, and for generously waiving fees while working to onboard all the partners in a compressed timeframe for the pilot. All our partners, namely Capital Float, Eko, Axis Bank, and Suvidhaa for enthusiastically supporting us, while setting aside their competitive instincts to collaborate and sharing learnings. And also to each of the iSPIRT volunteers for their guidance and constant supervision as well as for providing necessary information regarding the pilot & also for their support in commission to completion of the pilot in less than 90 days!

iSPIRT believes that by sharing the pilot learnings through the above publication, we will address aspects of entrepreneurship competencies and create the right entrepreneurial environment to produce innovations that are both technologically feasible and commercially viable.

iSPIRT would particularly like to extend its sincere thanks to CATALYST and Dalberg for the study and its dissemination.

Guest Post by Jaishankar AL, Tally Solutions

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India Stack for Smart Cities – Usage and Learnings that can be applied

india-stack-for-smart-cities

Sanjay Jain, Pramod Varma, Ranga Raj

With a lot of momentum being built around Digital India and Smart Cities, we offer a contrarian view of how government agencies and stakeholders should approach this complex problem. While there are many facets towards the journey of Smart Cities – some that are non-technology related – political, bureaucratic, architectural, social, cultural etc.,  and others that are technology driven. We will focus on technology led aspects and approaches to Smart Cities in this blog.

Internet of Cities – Platform for innovation

The impact of Internet and networked societies have led to India Stack – the foundation of Digital India. The learnings of development of these public goods along with others are used as case studies of how smart cities ought to be approached. Tradition within the government, public sector and large entities have been RFP/Tender procurement process. This inherently has some significant limitations:

You cannot tender for Innovation!

You need to conceive and define in great detail what is required in an RFP – Change requests and evolutions prove to be costly mechanisms to incorporate

Restricts solutions to be provided by selected parties and you and other stakeholders live/die by their performance

Constrains participation (Criteria to meet bidding and selection process)

Smart Cities are a journey and not a well-defined destination, so needs to be sustainable. To believe that anyone if capable of anticipating and predicting the needs/technology/standards evolution  over a 50-100 year time frame is impossible. Hence traditional procurement process need to be replaced by a different mindset.

Best principles from India Stack – Design for India Smart Cities Platform

Traditional vertically integrated approaches – pipelines are being replaced now with Platforms (documented in a popular book – Platform Revolution). So thoughts need to shift towards Government as a service or Government as a Platform. The approach adopted by the team in Aadhar were (in no particular order of priority):

Don’t outsource “Thinking” – Build a cross functional team with strong leadership (eg. As Nandan did for Aadhar)

Build internal capacity

The government could not possibly do it all by themselves internally – so the thought process of what was to be done by the government and what was to be done by ecosystem players was outlined

Debate on the ideas of the offering by engaging with thought leaders and stakeholders and subject matter experts that bring in different perspectives

Once the core idea and value proposition(s) are determined – float expression of interest to various parties

Based on feedback repeat the exercise if necessary

Post the outline of the “solution”, strip out the core elements that need to be done by the government and those that can be performed by the ecosystem players

Design core functionality Internally – focus on security, scalability, maximize use of open source and ensuring that the design does not lock oneself to a particular technology or a vendor

Keep it simple and minimalistic – Aadhar focused on a few parameters of storage as compared to other countries attempting to store 50+ parameters that had to be got from multiple sources leading to bureaucratic tangles

Open this core functionality via APIs

Create a strong policy/governance structure and operations management team for the core and how a level playing field can be provided to ecosystem providers

Incentivize ecosystem players (preferably on an outcome based model) to participate in the success of the platform for a win-win model (eg. Ecosystem players invested in technology infrastructure for Aadhar enrolment and were paid post a successful issue of an Aadhar number, which led to ecosystem partners being the marketers of success of Aadhar)

Aadhar did not invest in field infrastructure but just the strong secure scalable back end exposed via APIs and ecosystem partners invested and participated in the fastest growth of a Billion users worldwide!

Smart Cities Platform – Shared Public Goods

Smart Cities are complex, long term initiatives and should not lead to big RFPs, but take an approach similar to what Aadhar and the India Stack took. Design of Smart City platforms need to be capable of sustaining over long period of time as back end systems, front end systems, APIs/Interfaces etc., evolve over time. The figure it for yourself or DIY approach is not economically viable model as well as this will lead to at least a 100+ cities learning and reinventing the wheel and is certainly not an efficient mechanism of using tax money. Governance of municipalities or cities around the county are broadly similar, but have different priorities. A shared economy model of public goods that could be shared/reused and learning and best practices of one applied to another is a healthy approach that the country needs. The EU for example has a governance structure that creates shared public goods that can be leveraged and customized to local environments. Examples of shared economy in transport, accommodation etc have become very popular around the world. Smart Cities should not be funded and built entirely by the government but rather done in a public/private partnership model of a plug and play. An example is private green/alternate energy sources of generation owned by private parties can plug and play into the grid in a win-win model where everyone stands to gain – the utilities body, the private generation entity and the consumers/citizens as a whole. Similar approaches should be adopted by governments with the vertically integrated invest it all/own it all/ operate it all approach should be abandoned in favour of a shared economy model. 

Government as a market maker – spurring innovation (Open APIs, Open Data, Always on RTI)

Some elements of how services are delivered by only trusted parties that belong to the system have to be thrown out of the window. IRTC was available through reservation counters in stations and their website. The experience was not optimum, but when they opened up APIs, numerous ecosystem players offered railway reservations in many forms and that provided choice to consumers. Everyone benefited in the end – Railways, ecosystem players and commuters. Numerous services of governments are offered through only selected offices and a website/portal that often do not work. Government and agencies are not best suited to build and deliver services to customers – ecosystem players are and may the best person win. So governments need to think of themselves as “market maker” – this leads to innovative solutions from startups to well established players including government agencies to provide choice of delivery of these services to public and market forces then take over. Regulation and governance framework to ensure level playing field and not stifle innovation is essential. All of this will lead to greater creation of public goods as the India Stack has demonstrated.

Unique Identity beyond people + Digital Locker + Consent Layer + Payment – Citizen services

Aadhar and India Stack has been leveraged for various schemes such Direct benefit transfer (LPG subsidy, NREGS/PDS..), attendance systems etc. We now explore a few other examples of how India Stack could be leveraged by state agencies for re-thinking how services could be delivered to citizens.

Identity of four sovereign elements that need to be registered are essential

Individuals – Aadhar

Companies/Establishments – PAN/GSTN (Professionals such as directors/doctors/architects/lawyers etc are also distributed in silos but need to be networked and accessible )

Land – Records and Titles – again very distributed and siloed but essential to unlock the value of this asset type as the ability to verify, buy/sell/mortgage/rent could significantly contribute to the GDP of the country. Integrating this with the real estate bill would be a welcome step.

Things (eg. Vehicles) – Agencies such as the Vahan is an attempt to this, but adopts the traditional approach. Ownership/Buy/sell/insurance/permits/taxes/fitness/loan/mortgage/enforcement records when merged provide transparency to transactions.

Voting – Aadhar provides identity which could be used for cleaning up voter registration records for duplication and fraud entries. But with additional layers of entitlement and anonymity, plus digital lockers for documentation proof of residency (ward), remote presence-less digital voting for armed forces and others to exercise their right to vote without physically being present at the ward

Healthcare – Identity + health records + Consent + Insurance (RSBY or private/government players) + Payment/Claims processing/Renewal could make healthcare for all more affordable (lowering costs of transactions) and accessible without the frustration currently associated with it

People Verification – Passports/background checks/Employment/Certification of skills/degrees/Crime/Legal records – police/courts. Today a lot of this data needs to be digitized by distributed in thanas or court jurisdictions. An integrated record system across the country is essential for ensuring people movement and the ability to establish trust or be verified is essential for the employer/issuer/employee. India Stack could significantly contribute to enabling this national grid of information exchange based on consent.

There are numerous other examples in various vertical and horizontal segments that can benefit significantly with the India Stack and many public and private sector players are constantly innovating in this space

Citizens – It is our problem to solve

As we mentioned Smart Cities is a complex difficult journey that can be tackled with a big band approach. Take small problems solve them using these guidelines mentioned above and the use of open data combined with hackathons (bringing in key stakeholders – RWAs, NGOs, Citizens bodies that are deeply interested in the betterment of a city) to allow the ecosystem to innovate solutions to your problems. Seeing is believing and these small initiatives will then recruit more interested parties and a viral effect will take place. As a call to action it means a new thought process and approach by the government to bring in expertise from the outside (as done with Aadhar) and for core committed citizens to rise to the occasion and take up this challenge in a collective manner. It is our city, our government, but by paying taxes and electing a government, we no longer can throw the problem to the other side. The crowd sourced model, the shared economy model, the platform way of thinking are new mindsets that need to creep in to replace the tender raj. 

http://www.indiastack.org/

https://vahan.nic.in/nrservices/

http://www.rsby.gov.in/#

https://data.gov.in/

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Payments 4G (aka UPI) The Best is Yet to Come!

Last week was a landmark week for all Indians and by sheer coincidence; the country witnessed the launch of two generational shifts. The one that has everyone excited is Jio, a pure, data-only high-speed mobile network.

The other that perhaps will have equal transformational impact is its peer in the world of digital payments, the Unified Payment Interface (UPI). As soon as I had my first experience with UPI, I realized that its impact has barely been appreciated by most, including me.

Why Payments 4G?

Similar to data networks in telecom, which were built on top of the existing voice/SMS infrastructure, most innovations in Payments are layered on Card platform, a solution conceived in the 70’s. Almost all large-scale payment systems today run on the rails of card-based systems, operated globally by Visa, MasterCard, AmericanExpress and adapted in other regions by companies like UnionPay in China and RuPay in India. While innovators like PayPal, Venmo and Paytm in India have attempted to create close-loop systems, some with more success than others, the interface to the external ecosystem was still mostly card-based.

With UPI, the payment rails have been rethought and built from scratch, a de-novo system that was conceived in the year 2015 and implemented within 12 months. From the ground up the system is built with the idea of SmartPhones and Mobile Internet and like all things in Digital India, ZERO Vendor Lock-in.

A few key capabilities in the UPI architecture are fundamental game changers:

1)   Real-time, inter-bank authorization and settlement from one bank account to another: It sure is fascinating to see a live transaction with someone who receives a notification and can do a balance refresh to see their balance updated instantaneously using ANY application!

2)   SMTP for Payments: Just as you can use any email client (e.g. Outlook, Gmail to access any email account), UPI has decoupled the payment instrument (application) and store of funds (bank account). During the first week of its launch, two of my colleagues showed me a demo of transferring money between each other’s accounts with the same bank and neither of them was using that bank’s mobile application.

3)   Support for all types of payments: It can be anything from one-time, recurring, pull, push, pre-authorized, on-us, off-us, etc. The flexibility in the platform that is exposed to the banking ecosystem as an API is immense.

4)   A concept of Virtual Payment Address (a la email) that enables privacy and security and in effect as much of anonymity with auditability and traceability.

India has largely been a cash economy. For digital payments to takeoff, it is important to be able to bring as many of the real attributes of cash as possible, notably in Real-Time, with 100% value and allowing anonymity between payer and payee. Additionally, digital transactions have the benefit of auditability and traceability, both of which are important in the case of dispute resolution.

For once we have a payment system that is built on a whole new rails and I believe its impact will be nothing short of revolutionary. Coupled with the Smart-Phone and Mobile Internet penetration and an aggressive business model, there are five areas that will be impacted significantly.

1.    P2P – P2P is set for lift-off!

a.   Until now P2P payments in India have been largely done in a batch manner using NEFT or RTGS platforms and even with the launch of IMPS (the underlying foundation of UPI), few had used the slightly clunky interface. With virtual addresses, it becomes easy to send money to someone or send a collect request too. This means Social Payments, Bill Splitting, Gifting and other such use cases will come to the fore.

b.   Additionally two fundamental changes are likely to happen

i.    Informal sector merchants will be happy to accept payments into their bank accounts because they are real-time and zero charge – which can be a great way to get them into the system. Of course once they recognize the value of being in the formal sector, they may have to pay a fee – or alternately a bank may leverage the data for services like loans etc. and keep the payment transactions free.

ii.    Everyone automatically becomes an ATM machine , which in essence can be a catalyst for digital transactions. A large part of the population keeps cash because they may not have access to an ATM, but knowing that an ATM is always around the corner will give people the confidence to keep their money digital. One company has built an app to do just this and could be an exciting one to watch.

2.    Acceptance – from Rates to ROI/Impact will drive decisions

In the enterprise and mid-market sectors, the previous generation of payments innovation, notably SmartPhone-based Mobile POS solutions that have enabled businesses like insurance companies, e-commerce companies, utilities, police departments, and several others to enable digital payments – although on the same rails as the card system. These initial forays have proven the improvement in agent efficiency and productivity, often an increase of up to 10%.

With UPI, the stage is set for SmartPhone/POS to go mainstream and for payments to be integrated into business workflows. Businesses will hence make buying decisions not based on Merchant Discount Rates but more by choice of applications, availability of SDK’s, breadth of payment offerings and by trying to quantify ROI and productivity gains. We expect such sales processes to no longer be driven by banks but done more in partnership with Application or Flexible Payment platform providers.

3. Consumers – Win with rich choice of front-end applications

Until now, consumers could only transact with a card issued by their bank (credit/debit/prepaid) or the mobile banking app of their bank. With the 4-party model of UPI, consumers can use any UPI-certified app to transact via their SmartPhone. This is a breakthrough in that consumers will be spoilt for choice and can pick the best app. While the initial restriction is that a bank must develop such apps, there are some examples of banks allowing third parties to build differentiated experiences. Over time it is clear that there will be an abundant supply of apps and consumers can use any app they like. While this might seem like banks are giving up control but in reality banks that develop a partner-ecosystem can benefit the most by getting visibility into transactions with customers who may not even be banking with them. It’s surely a shift from the banks’ perspective but a big opportunity nonetheless.

4. Convergence – Online & Offline

Historically in Card-based systems, there was a lot of importance given to Card Present vs. Card Not Present . However as we move to a “Phone-present” world, there is fundamentally no difference between a face-to-face transaction and a remote transaction. We are already seeing use-cases like Uber where the service is delivered in a face-to-face manner but the payments are processed in an online manner. We expect more and more of this to happen and business wise the system should start treating all payments the same. I expect to see one simple business model for payments in the near-term.

5. New Metrics – Mining the digital exhaust

Business Metrics will change – from Stores to Flows!

The most fundamental thing that will change with UPI is the business metrics. In the past for banks, CASA (Current Account Savings Account) count and balances were always the primary metrics that were tracked, along with Merchant Discount Rates and transaction fees. However in the UPI-enabled world and the four-party architecture, it is clear that the most important isn’t just to be the store of funds, but to be in the flow of the transaction. As such banks will need to start tracking the use of mobile apps by them or partners, use of such apps by existing customers and customers of competitors as well as the use of competing apps by their customers. With switching costs now becoming close to zero, banks that encourage the creation of an ecosystem and giving the maximum choice to their customers are likely to emerge as winners. Mining the digital exhaust will be key for banks to make the most of UPI.

While exciting, it’s still early days in India. UPI has barely gone live in the past one-week, and already we’re seeing some dramatic impact it is having on the system. The next few months and years promise to be truly exciting for the Indian consumer, retail or corporate, as well as the banking sector which stands to gain a great deal from this innovative approach to payments. Indeed the real-time architecture of UPI will truly make it the envy of many a payment regulator and industry expert around the world.

Watch this space, the best is yet to come – but one thing is for sure – UPI will usher in a disruptive step-function in the growth of digital payments in India. There is no precedent from developed economies – India is blazing a new trail and writing the new chapter in the world of Real-Time Payments!

PS: All images are courtesy iSPIRT

Guest Post by Sanjay Swamy, Entrepreneur & Early-Stage VC! IndiaStack Evangelist. Reblogged from here