#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.


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.


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.


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].

#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/


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

-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.

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.  

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 [email protected] 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

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?


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

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


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. 





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

Instant, Automated, Remote: An Introduction to Digital Credit

There is today in many countries a proliferation of new digital credit services. These have been especially prominent in mobile money markets in sub Saharan Africa. The poster child has been M-Shwari out of Kenya; though there are a burgeoning array of new varied services in many places. The signals of deep interest from India are strong and India Stack may well position this market for an exciting ride.

At CGAP we have come to use the term “Digital Credit” to describe this new kind of service; though there may well be other terms. We hold that digital credit has three attributes that distinguish it from conventional credit:

  1. instant – decisions and transactions happen fast from application to disbursement to collections
  2. automated – while lending decisions are carefully calibrated each individual decision happens within a decision tree framework along a set of (evolving) algorithms, and
  3. remote – the services are delivered without relying on in-person interactions.

As we have examined nearly a dozen digital credit deployments in the past year, we saw many exciting innovations but also many early stumbles. To help new entrants get up the learning curve faster we developed, delivered and tested a set of training materials. These materials have been refined thorugh more than half a dozen deliveries with a wide array of banks, fintech firms, analytics firms and mobile money operators. We have put these materials together into An Introduction to Digital Credit. .

The introductory course is available for wide public dissemination and use. We built it around five main sections:

  1. An introductory session describes what digital credit is and distinguishes between two key models. One is new products – like M-Shwari – that are direct to individuals. As contrasted with new digital credit services that are delivered via a merchant or value chain aggregator. These two approaches entail quite different risks and business models.
  2. A second sections covers credit scoring and uses of new alternative data, such as mobile phone call records, are often part of the new innovation in digital credit. There is an introductory session for those new to credit scoring that describes how scoring is developed, how to tell if scorecards work, and an introduction to various kinds of data for scorecard building.
  3. A third section covers some of the product and service design considerations. This includes product details such as tenor, loan size, and initial pricing. There is in particular some very early research on consumer protection concepts pioneered by CGAP – a particularly important issue where given how fast digital credit can be delivered.
  4. A fourth section covers some of the financial considerations. While digital credit can be extremely low on branch and staff costs, often requiring no physical infrastructure to reach clients, it still incurs other costs. This section details a basic financial model for how digital credit business models can be built and highlights some of the unique financial dynamics.
  5. The final section is on partnerships. This is often the biggest source of failure is around partnership and blockage to experimentation. This concluding section on partnership highlights critical roles and provides a basic tool for how interested parties can consider and build out potential partnerships.

Whether you are already operating a digital credit service or planning to do one, the course aims to provide a structured high level view based on real deployments. It is a starting place to benefit from others that have tested and tried the idea.

At CGAP, we are excited about the potential of digital credit to expand access and also realistic about what more we need to do to make lending responsible amid the speed new technology. India’s fast moving changes in digital finance will provide a new array of opportunities and we can’t wait to watch and learn from what happens next.

Guest post by Gregory Chen, Regional Lead for Asia at CGAP, a resource center on financial inclusion housed at the World Bank.

UPI – The Revolution in Payment Industry

Japan introduced ‘Zengin’, a real-time money transfer mechanism in 1973. Thirty Seven years later, NPCI (National Payments Corporation of India) introduced IMPS (Immediate Payment Service) in 2010 as the first real-time 24*7 money transfer mechanism in the country.

In-between PayPal launched money transfer by just knowing a person’s email ID in 1999 and now in 2016, India is about to make UPI (Unified Payment Interface) live in few weeks. It will enable real-time transfer of money 24*7 just by knowing a person’s virtual address.

These two comparisons above need to be looked at with different lenses, one from the laying of groundwork and the other ease of usage. It took some time but NPCI setup IMPS which has performed very well with IMPS transactions growing at a staggering pace, over 100% every year. In May 2016 alone, USD 3.4 Billion were transferred on it.

However, these transactions have not really been very easy to carry out for Indian consumers. Whether with account numbers and IFSC codes or with MMID, the friction has curtailed the full potential of this behemoth on rise. This is where UPI comes in, abstracting the payments on top of existing robust IMPS to the degree that Indian consumers can now carry out transactions in few taps with just a virtual address. It is India’s PayPal moment for consumer payments bringing it to that parity in terms of end user convenience that will only lead to further digitisation of cash in the country.

This moment is also an inflexion point for us. Bill Gates recently said that “India will lead the world in digital financial inclusion”.

Few key things have led to this point.

The Indian consumer has adopted smartphones and internet very well. In 2015, the internet user-base in India recorded an impressive 40% growth over the past year and the smartphone shipments in India is estimated to grow by 29% in 2016. Stepping few years back, it has been a remarkable journey starting with paying for a train ticket on IRCTC website to small mobile recharges to e-commerce payments, Indian consumer got a taste of online payments and got comfortable with it and now slowly like it panned out in West, the demarcation of high touch and low touch products is diminishing with users now purchasing anything online.

Consumer trends aside, policy-making and the work of bodies such as RBI, NPCI, iSPIRT (Indian Software Product Industry Round Table), IAMAI and many more has helped in information collection, dissemination and laying of frameworks to provide a solid ground to build up Indian mobile payments story.

Apart from peer to peer payments, IMPS can now carry out PULL based transactions as well so that a user can now make merchant payments seamlessly with just an MPIN in a ‘Single Touch, 2 Factor Authentication’ method where a user’s device ID is being treated as the first factor of authentication.

Like any new system, it will take some time to set up and grow. The merchants will have to come on-board quickly to accept payments with UPI and users will need to be educated. For merchants, it will have a low TDR (Transaction Discount Rate), comparable to low Debit Card rates and higher conversion in transactions as multiple intermediaries and hops for an online payment to take place successfully will get out of the way. For the paying customer, it will allow payments in one tap and money will get debited directly from their bank account.

In past, we have seen many financial systems and methods take years before going mainstream but we believe that UPI will get adopted at a faster pace than what we have seen in the past. A lot of macro-trends and unique Indian payments landscape in which masses skipped credit cards altogether and many had a mobile smartphone as their first internet device indicates that things will play out differently here.

That brings us to the question that amidst all of these changes in the ecosystem with all of the above playing their crucial part, what role do we, the startups have? Answer is that as young entrepreneurs, it is our obligation to take this story forward.

Just like Uber used GPS, Google Maps and different facets of established or emerging pieces of technology, we have to use UPI to provide Indian consumers with great experience and delightful products.

In doing so, we will have to educate Indian consumers about what UPI is – what a virtual address is, how safe and secure it is, how they can have a virtual address issued by a bank when they don’t even have a bank account with the bank application (Payment Service Provider) issuing that virtual address and more.

The experience of on-boarding them onto UPI will have to be very simple and delightful.

The old ‘Goldilocks effect’ will have to be brought in where a user should not get too wary of the new yet understand that the whole payments paradigm has changed for good.

We at Mypoolin have spent a great amount of time acquiring tacit knowledge in how consumer payments are made and users behave in various social contexts and settings when it comes to payments. We are of the strong view that UPI brings the great convenience required for payments to be made smoothly and we will build great value on top of it for Indian consumers. We have begun playing our role by education our existing users and more with a UPI specific website and other channels about UPI which has helped us gauge market response to it and get valuable feedback that we can share with the ecosystem at large for the benefit of the market.

The applications of UPI are in many different use-cases and it is upon us startups to recognise it and take it to market.

We can’t blame it on anyone – the system or the current economic downturn to not do our job – UPI is one of the many enablers to follow that will help us build great technology products to make India a ‘Product Nation’

The true mettle of Indian founders to build great products will be tested and it will change the mindset as well to build India specific New from the scratch and set a trend the country needs for future entrepreneurs to follow.

This is our pivotal moment and we must not let it slip away.

Guest post By Ankit Singh, Co-Founder, Mypoolin

The coming revolution in Indian banking

Increasing penetration of smartphones, Aadhaar-linked bank accounts and a host of powerful open and programmable capabilities is set to create the ‘WhatsApp moment’ for Indian banking.

Once in a while a major disruption or discontinuity happens which has huge consequences. In 2007, the internet and the mobile phone came together in a whole new product called the smartphone. This phone, with its own operating system, such as the iOS or Android, could support over the top (OTT) applications. The messaging solution for the smartphone did not come from the giant telecom or internet companies. Instead, it came from WhatsApp, a start-up. WhatsApp does 30 billion messages a day, whereas all the telecom companies put together do 20 billion SMS messages per day. Such is the power of disruption!

Such a “WhatsApp moment” is now upon us in Indian banking. This discontinuity has been caused by several things coming together. Smartphones are growing dramatically and are expected to reach a penetration of 700 million by 2020. Over 1 billion Indian residents now have Aadhaar, an online biometric identity. The government promoting financial inclusion through the Jhan Dhan Yojana has led to over 200 million new bank accounts being opened. With the RBI giving licences to over 20 new banks, including small banks and payment banks, the competitive intensity of the sector is set to increase. One can visualise a future where every adult Indian has an Aadhaar number, a smartphone and a bank account. Already over 280 million Indian residents have an Aadhaar-linked bank account and around 1 billion direct benefit transfer (DBT) transactions have happened, whose value is in the billions of dollars.

On top of this, a set of powerful open and programmable capabilities, that are collectively referred to as the “India Stack” by the think-tank iSPIRT, has been created over the last seven years. Aadhaar provides online authentication using one’s fingerprint or iris, which can be done from anywhere. This can make transactions “presence less”. The e-KYC (know your customer) feature of Aadhaar enables a bank account to be opened instantly, just by using the Aadhaar number and one’s biometric. The e-sign feature enables online documents to be digitally signed with Aadhaar. The “digital locker” system enables the storage of such electronic documents safely and securely. All this can make the entire banking process “paperless”.

The final two layers of the “India Stack” have great relevance to the future of banking. The Unified Payment Interface (UPI) layer, a product built by the National Payment Corporation of India (NPCI), a non-profit company collectively owned by banks and set up in 2009, will revolutionise payments and accelerate the move towards a “cashless” economy. So “pushing” or “pulling” money from a smartphone will be as easy as sending or receiving an email. This product from NPCI is the latest in several payment systems that they have developed, from the National Financial Switch, National Automated Clearing House, and RuPay cards, to the Aadhaar Payment Bridge, the Aadhaar-enabled Payment System and IMPS, a real-time payment system.

The move to a “cashless” economy will be accelerated by the Aadhaar-enabled biometric smartphones. So credential checking in banking will move from “proprietary” approaches (debit card and PIN) to “open” approaches (mobile phone and Aadhaar authentication). As such, the holy grail of one-click two-factor authentication, now available only to giants like Apple, will be available to kids in a garage to develop innovative solutions.

Finally, as India goes from being a data-poor to a data-rich economy in the next two to three years, the electronic consent layer of the “India Stack” will enable consumers and businesses to harness the power of their own data to get fast, convenient and affordable credit. Such a use of digital footprints will bring millions of consumers and small businesses (who are in the informal sector) to join the formal economy to avail affordable and reliable credit.

As data becomes the new currency, financial institutions will be willing to forego transaction fees to get rich digital information on their customers. The elimination of these fees will further accelerate the move to a cashless economy as merchant payments will also become digital.

This will also shift the business models in banking from low-volume, high-value, high-cost, and high fees, to high-volume, low-value, low-cost, and no fees. This will lead to a dramatic upsurge in accessibility and affordability, and the market force of customer acquisition and the social purpose of mass inclusion will converge.

These gale winds of disruption and innovation brought upon by technology, regulations and government action, will fundamentally alter the banking industry. Payments, liabilities and assets will undergo a dramatic transformation as switching costs reduce and incumbents are threatened. As the insightful report from Credit-Suisse has so well explained, there is a $ 600 billion market capitalisation opportunity waiting to be created in the next 10 years. This will be shared between existing public and private banks, the new banks and new-age NBFCs. It may even go to non-banking platform players, which use the power of data to fine-tune credit risk and pricing, and make money from customer ownership and risk arbitrage.

The public sector banks, which occupy the commanding heights of the economy with a 70 per cent market share, will be particularly challenged. Even as they deal with the inheritance of their losses, they will have to cope with, and master, enormous digital disruption. This will require their owners, the government, to give them the autonomy and freedom to experiment and innovate.

To quote Shakespeare, “There is a tide in the affairs of men, which, taken at the flood, leads on to fortune”. The $ 600-billion opportunity is here. The WhatsApp revolution went unnoticed by incumbents. Normally such disruptive changes (like bubbles) are only recognised after they have happened. In this case, the forces of change are evident and can be anticipated. The opportunity for the banking sector has been called, and it is equally accessible to incumbents, both in the public and private sector, to the new banks, to the NBFCs and the tech companies. The future will belong to those who show speed, imagination and the boldness to embrace change.

This article was written as foreword to a Credit-Suisse report on the Indian banking sector

How IndiaStack can bridge country’s digital divide

IndiaStack can enable the government, the citizens and entrepreneurs to interact with each other through an open digital platform.

At a time when financial technology is changing the face of Indian banking, the government is looking to bridge the digital divide.

The biggest hurdle here is paper-based authentication and approvals. To bridge this gap iSpirt is working with various government agencies to develop IndiaStack.

What is IndiaStack?

IndiaStack is a paperless and cashless service delivery system being conceived by a digital think tank iSpirt. It can enable the government, the citizens and entrepreneurs to interact with each other through an open digital platform. It is the largest application programming interface that is being developed in order to enable 1.2 billion Indians to get access to goods and services digitally.

When was it started?

It was conceived by the government of India in 2012 when they realised, in order to help services reach the last mile of the Indian population, it needed private technology solutions to be built on the Aadhaar database. The project is being pedalled forward by Nandan Nilekani the ex-chief of Unique Identification Database Authority of India, who describes it as the “Whatsapp moment for Indian banking”.

Why is it essential?

The government has been striving for a less cash economy to prevent pilferages and last mile connectivity of financial services. While the Aadhaar database allows users to complete all KYC requirements, there is still a gap in getting approvals because of the need for a signature on paper.

IndiaStack will be able to bridge that gap through its digital lockers which will allow for digital signatures and seamless API (Application programming interface) integration for authentication through eKYC.

How will it be designed?

IndiaStack is conceived as a pyramidal structure based on the Aadhaar database as the base and unified payments interface (UPI) that is being developed by NPCI (National Payments Corporation of India) as the top. The two middle stacks comprise digital signatures and eKYC.

Nilekani has explained that with the help of digital signatures customers will not need to actually sign a paper document, instead it can digitally sign it by using a smartphone. eKYC will also enable the identity of the customer to be determined digitally as well.

How will it be beneficial?

The biggest benefits could be completely digital payments through the UPI infrastructure for a less cash economy. Also, loan approval through eKYC and digital signatures could be done faster in a paperless fashion. Both these steps can bring people without access to digital payments to come within the digital fold.

Republished from ETTech

India’s reverse Brexit: Passing the GST Bill will create millions of formal sector jobs

Imagine a warehouse of more than one crore square feet in Central India – around five times the size of the largest football stadium in the world. It would have an eight lane highway that is connected to all four corners of the country on one side. It would have one of India’s largest railway container terminals for handling enormous goods trains on another side. It would have an all-cargo airport terminal operated by a partner on another side. And on the fourth side would be a cluster of manufacturers supplying the warehouse in real time based on big data analytics of national demand and inventory for their products.

This warehouse is not even on the radar today but can become a reality with the GST Bill. Passing the GST Bill – India’s reverse Brexit moment that will end state-by-state rules and create a national market for goods to be supplied from anywhere to anywhere – will create millions of formal jobs.

Currently, supply chains for e-commerce companies are not optimised but distorted by regulatory cholesterol that prevents us from offering customers the lowest cost or fastest delivery. We are unable to supply goods worth more than Rs 5,000 to UP because our customers have to go to a tax office and complete paperwork. We are unable to keep goods from our 90,000 suppliers in our warehouses across Karnataka due to double taxation. We often face confiscation of goods and cash in Kerala because of their approach to tax domicile, which conflicts with supplying states.

With GST, all of this will be history.

A seamless national supply chain that is agnostic to supply or demand destination is urgent, important and overdue for three reasons. First, it is India’s development trajectory to reduce poverty. Second, it will improve enterprise productivity. Finally, it is about empowering consumers and producers.

Let’s look at each of them in more detail.

We need to evolve very differently from China as we do not have the same global manufacturing and trade opportunity China had in 1978. Plus, democracy imposed some very desirable but real fixed costs on infrastructure building and growth. Harvard professor Ricardo Hausmann suggests that the best predictor of sustained prosperity is “economic complexity” and India’s economically complex economy is a great opening balance for building on domestic consumption growth to reduce poverty. Essentially, instead of the traditional formula of large manufacturing, exports and large enterprises, i think India’s destiny lies in services, domestic consumption and small and medium enterprises.

The second point of enterprise productivity is important because poverty can be eliminated by improving productivity. We are thinking hard about individual productivity like skills and education, but we must recognise that India’s problem is not jobs but wages. Our official unemployment rate of 4.2% is not fudged. Everybody who wants a job has one, just not at the wages they want. India’s enterprise stack is largely informal, unproductive and built on self-exploitation. Of our 63 million enterprises 12 million don’t have an office, 12 million work from home, only 8.5 million pay taxes, only 1.5 million pay social security, and most tragically, only 18,000 have a paid-up capital of more than Rs 10 crore.

Drying this swamp is key. The US economy is nine times our size but only has 22 million enterprises. Ninety per cent of India works informally (this is the same number as 1991 and means that 100% of net jobs in the last 20 years have been created in informal enterprises). Many factors go into enterprise productivity but the main one is market access: connecting with buyers.

The final point is about consumer and producer empowerment. The majority of India’s 600-million-strong transacting consumers do not have access to quality products at affordable rates. Similarly, lakhs of producers are denied market access. Because of geographical constraints and artificial restrictions placed by the current tax regime, quality products are expensive and affordable products suffer from poor quality.

Here technology can come to the rescue post-GST. The ‘India stack’ framework for transactions (paperless, presenceless and cashless) is being first applied magnificently to finance but has huge implications for production and consumption once GST is passed. An unintended consequence of implementing the India stack across supply chains will be big data analytics for government that will not only improve compliance but greatly expand formal economic activity and create a virtuous cycle for credit, employment and wage rises.

One of the most remarkable books about India is The Integration of Indian States by V P Menon. It describes wonderfully how the 562 maharajas that administered more than 40% of India’s land and 25% of our population in 1947 were brought into the Indian state by 1951 in a project led by Sardar Patel, which secured the political unity of India. Passing GST will have similar impact on our economic unity. It will be a gift to first-generation entrepreneurs who don’t have connections or money but just the courage of their hearts, the sweat of their brow and the strength of their back.

Coming soon after Brexit – the UK’s economically baffling decision to leave the European Union – passing GST would also signal to the world that India’s economic ambitions have new rocket fuel. India’s regulatory cholesterol has been hostile to small entrepreneurs. GST rights that wrong and makes a new appointment with India’s missed tryst with destiny. This is one that she must keep.

Guest Post by Sachin Bansal, Co-founder & Executive Chairman of Flipkart

What is UPI after all?

India has come a long way in online payments in a very short period of time. With the launch of NEFT and IMPS, cash transfers between accounts has been made electronic, paperless and instant. NPCI (National Payments Corporation of India) has recently launched UPI (Unified Payments Interface) as a new way to transfer money in India. This blog post’s content is based on a recent webinar conducted by Razorpay. You can watch the webinar below or at this youtube link.

UPI holds the potential to change the face of online payments in India, but there is still a lot of confusion around what UPI is supposed to be. Hopefully, by the end of this blog post, you will have a better and clear idea of what the buzz around UPI is all about.

What UPI is

  1. UPI is a way to transfer money
    The easiest way to think of UPI is that it is a payment method to transfer money between 2 parties. It is similar to NEFT or RTGS transfers in that way. Even though it is being promoted as a “Payment Interface” and an API, it is easier to think of it as a way to transfer money.
  2. UPI is interoperable between banks
    This is really important. By standardizing UPI as the “money-transfer-API”, NPCI is forcing banks to improve their interoperability. This will let customers manage their bank accounts on multiple banks over a single banking application (from any of the banks). Huge deal going ahead.
  3. UPI is running on top of the existing IMPS Infrastructure*
    The asterisk is because IMPS is being used “as of now”. This might change in the future as the scope of UPI is increased.
  4. UPI is betting heavily on smartphones in India
    Smartphone penetration in India is on the rise. UPI is heavily betting on smartphones, which means it will require mobile banking applications as a basic minimum. We also have NUUP/*99#, the national based-payments infrastructure run by NPCI and it is somewhat interoperable with UPI. However, to leverage the entire suite of UPI, we’ll need to get smartphones in everyone’s hands.

What UPI is not

  • UPI is not going to be immediately available everywhere
    UPI is currently in beta, with access restricted to certain parties. Even after this period ends, there will be very few parties actually talking to UPI. However, every bank will have its own timeline on their UPI integrated applications going live. Expect to see it getting announced by banks somewhere in Summer this year.
  • UPI is not a mobile wallet killer (yet)
    This is probably the most talked-about question, and the answer is not very clear as of now. As with every new technology, the answer depends on the adoption. UPI does have some barriers to entry, such as smartphone penetration and even things like availability of apps in Indic languages. Mobile Wallets have flourished in India because they have allowed customers to spend money online far more easily compared to other payment methods. UPI is far more easier to use for the end-customer while also having the advantage of being interoperable. (You can’t check your Paytm balance from your MobiKwik app, but you can do that with UPI).
    However, UPI is still not there. This is an early avatar, and it will require a lot of polish before people will start trusting UPI as the payment method for everyone. Meanwhile we’ll still have to rely on payments being made of Credit Cards and the plethora of netbanking options we currently have.
  • UPI is not going to replace Net Banking
    The simple reason being: UPI does one thing and it does it well (money transfers). Netbanking applications provided by banks do far more things. For eg, you can apply for health insurance on your bank portal. UPI gives you the most useful feature from there, in a far more accessible manner.
  • UPI is not a magic bullet for payment processing
    Believe this from someone who works at a fintech company. Payments are hard. Online payments, even more so. UPI might solve some of the problems and solve them really well, but it will take a lot of time and nurturing before UPI can be anywhere close to a single solution. For instance, you can’t ask someone with a non-participating bank account (such as a foreign bank, or a small co-operative bank) to transfer funds using UPI. There is no escrow mechanism in UPI, and rightly so, because it doesn’t belong in such a service. However, there are use-cases for escrow payments that will still require banks or other companies to build on top of UPI, perhaps.

What UPI means for everyone?

  1. Customers can now transfer money far more easily using their phones For a start, as a customer you get to do away with the netbanking websites and bank-specific mobile applications and get a common interface on a single app (which is still provided by any of your banks) to make fund transfers. However, the implementation of these apps is still left to the banks, and they can still add layers of complexity on top of this. For eg, UPI spec recommends an “Add beneficiary details” step before every payment, even on mobile applications as a phishing prevention measure. However, it should lead to a better “common” experience for the end-customer, in general.
  2. Merchants can now collect money from their customers easily A small-time merchant benefits greatly from UPI and can send invoices to their customers from the mobile app. Even small-time kirana stores can start accepting large payments from their regular customers over UPI. All the merchant needs to ask for is your mobile number and send you a “collect” request, which will appear as an option in the mobile app.
  3. Enterprises have to handle the hassle of another payment method This is where it gets complicated. For larger merchants, it gets unwieldy to use a mobile app to ask customers for payments. However, since customers are already paying them via other methods, this is an extra payment method that they need to integrate and test. Even then, every merchant would need to get vetted by NPCI before being granted access to UPI.
  4. Banks can now compete with wallets in mobile payments Banks have a silver-lining: If they work hard enough on their mobile app experience, they can gain back the market they have lost to mobile wallets.
  5. Wallets have to convince NPCI to add them to UPI Wallets are currently not in scope as a provider in UPI. This is more of of a consequence of the decision to use IMPS rather than NPCI ignoring wallets. However, this might change in the future, as wallets might be included in the scope. Expect this to be big news if/when it happens.

UPI Future?

UPI – Future of Indian Payments?

The success of UPI depends on whether it sees mass adoption. And the people who can ensure that are right here in this webinar. NPCI has taken a huge leap by releasing UPI and working on it. Now it is upto companies, developers, merchants, and even customers to make sure that it sees its full potential. Go ask your bank when are they integrating with UPI, and when can you start using it.

No other country in the world can boast of a payment solution as well designed as UPI. However, we need co-operation from all parties, including the Banks, to make UPI the success that it can be.

In case you have any queries regarding UPI, you can reach out to us at [email protected]

Guest Post by Abhay Rana, RazorPay.