What is India Stack?
As www.indiastack.org puts it, India Stack is a set of APIs (something techy) that allows governments, businesses, startups, and developers to utilize a unique digital Infrastructure to solve India’s hard problems towards presence-less, paperless, and cashless service delivery.
How does it enable that?
Through meaningful and systematic collaboration among Aadhaar (Unique Identification), eSign (Aadhaar OTP based e-signatures), eKYC (Aadhaar OTP based KYC), UPI (Laserspeed Bank transfers), and Digilocker (Aadhaar linked Digital Locker for electronically saving documents like Driving License, Voter ID, School Certificates, etc.).
The legacy banking companies and startups alike are learning more by the day on ways to utilize the India Stack to its full potential. Jio for example used Aadhaar, eSign, and eKYC to provide SIM cards that changed the Indian telecom landscape and everything around it.
A BCG analysis exhibiting the end-to-end digital lending framework run on India Stack:
The latest addition?
RBI’s Accounts Aggregators. Accounts Aggregators or AAs will be institutions, established as NBFCs.
What will they achieve? As FinancialExpress puts it, AAs help unlock data from various Financial Information Providers (FIPs), including banks, NBFCs, mutual funds, insurance agencies, GST department, IT department, among others, and provide them to Financial Information Users (FIUs) that offer various products and services in the banking, financial planning, investments, insurance and other sectors.
The beauty? The entire data sharing process will be based on a consent mechanism where the consumer can decide the time and the period for which the data should be shared. Say, for example, you go to a wealth management expert for assistance in managing your wealth. The wealth manager will take your digital consent to get access to your financial footprints such as online transactions, credit status, bank transactions, Income tax filings, etc. This enormous amount of data will help the wealth manager to understand your financial health and habits and accordingly suggest solutions that are most beneficial for you.
Has anyone bought into the idea yet?
NBFCs like CAMS, FinVu, NADL, and Onemoney have already obtained the license from RBI to function as an AA. However, they are yet to formally begin their operations.
Why is it required?
sahamati.org.in, is a not-for-profit organization, acting as a collective of the AA ecosystem. It points out that AA will be the torch bearer in unlocking credit for more than 1 Billion underserved Indians and 58 Million MSMEs for whom there is no credit bureau file and are denied credit by the legacy BFSI.
NITI Aayog’s Data Empowerment and Protection Architecture (DEPA) Draft, claims that pre-Covid-19, nearly 92% of small businesses lacked access to formal credit, and allowing consent-based data sharing through AAs will help bridge the INR 20-25 Tn gap faced by the sector.
Is it all rosy?
Even though the entire concept of AAs sound fascinating, founders and stakeholders have raised several concerns around its practicality. These include lack of clarity of the revenue model of the AAs, unknown levels of efficiency of data sharing, the privacy of the data that is flowing through consent and scalability of its proposed use cases.
The big question?
AA is arguably the final piece of the India Stack and is set to change how BFSI work. Will data analytics and blockchain that is propagated by Startups like Navi, Davinta, CASHe etc. still be required when AA products will be able to provide enough information on loan seekers?
This article is a part of the April'21 edition of our Startup Newsletter. Here's the complete publication:
