Account Aggregator: The Final Piece Of The India Stack Puzzle

In its report last year, India’s IT ministry had envisaged unlocking $1 Tn of value from the digital economy by 2025, with half of the opportunity originating in new digital ecosystems. The bombastically-titled India’s Trillion Dollar Digital Opportunity said the country is the second-fastest digitising economy amongst 17 leading economies of the world, only behind Indonesia. So what gives the government the confidence in the digital economy? Two words — India Stack.

It would not be an exaggeration to call India Stack the heart of Digital India — yes, it’s a collection of open APIs, but it revolutionised Indian fintech startups and banking. With Aadhaar as its foundational layer, India Stack combined eKYC or digital identity, Aadhaar-enabled payments system, unified payments interface (UPI) and now, account aggregator.

Banks such as Axis Bank, Bajaj Finserv, ICICI Bank, IDFC FIRST Bank, HDFC Bank, Indusind Bank, Kotak Mahindra Bank, and State Bank of India (SBI) and fintech startups are exploring use-cases of account aggregator or AA. The AA framework makes data sharing easier across services, but only after gaining consent from users. According to RBI, the AA framework will help financial services companies to easily get transactional and banking data of users to optimise product offerings for their customers.

“India Stack is envisioned as new social infrastructure with the capacity to increase the resilience of Indian society to change, and thus to help propel India into the 21st-century digital economy,” – iSPIRT Foundation founding member Arvind Gupta and author Philip Auerswald, Harvard Business Review

Starting with Aadhaar in 2009, India Stack has been fast bridging the gap between India and the so-called Bharat or the India that lives outside Tier 1 and metros. While a cross-section of Indians is used to credit and debit cards, India Stack, in association with JAM (acronymised from Jan Dhan Yojana bank account, Aadhaar and mobile number) has helped bring digital banking to the most rural parts of India as well, where banks were otherwise unable to cater to.

So are all four layers of India Stack fully fleshed out in 2020, and what else is coming to join the collection of APIs? Besides delving into the decade-old journey, let’s take a look at the impact and the potential of India Stack.

The Difference, Then And Now: Opening A Bank Account

It was early 2000. In Samastipur district of Bihar, I had to go to the bank at least thrice just to open a bank account at a public sector bank — the first time to get the application form, second, to come up with two witnesses and finally, to file a separate application for the debit card issuance. The entire process, from application to getting the debit card, took almost a month, but this was nothing compared to the plight of a friend for an education loan from the bank.

“The bank manager was not ready at all to extend any loan to us.”

That’s really unusual for something as commonplace as a student loan in India. And the reason? “My home was around 15 Km from the bank. To approve the loan, bank employees were supposed to visit my place for physical verification. There was no other bank closer so my father and I had to plead with the bank manager for a good six months to convince him to visit us and approve the loan for just INR 4.5 Lakh for medical college,” he recalled.

Twenty years is a long time in the world of technology and if India’s banking system has seen a complete overhaul since then, it’s largely thanks to India Stack.

Today, it does not matter how far is the physical location of the bank, banking services are just a tap away on one’s mobile. Thanks to the eKYC and Aadhaar, bank officers never have to visit a customer’s home to validate the address. And INR 4.5 Lakh or more — loans are disbursed in a matter of seconds for some users through platforms such as MoneyView, MobiKwik, Zestmoney, LoanTap, Credy, EarlySalary, Qbera, PaySense, MoneyTap and i2iFunding.

Moreover, startups have diversified and are offering credit for a range of purposes, even targeting niche sectors such as teenagers and new workers.

The Story Of India Stack Starts With ‘Imagining India’

The story of Aadhaar, and indeed India Stack, started with Nandan Nilekani, called as the Bill Gates of India by author Thomas Friedman.

In his seminal ‘Imagining India: Ideas for the New Century’ in 2008, Nilekani proposed the idea of a unique ID (UID) for every Indian that could be used to prove their identities in a digital world.

According to various accounts, then Prime Minister Manmohan Singh was so impressed with Nilekani and Imagining India that in his second term in early 2009, he even wanted to recruit Nilekani as the minister of human resource development.

Instead, on June 15, 2009, Nilekani met Singh to formally take charge of the UIDAI project and Aadhaar was born.

The purpose was clear, “Till date, Indians did not have any universal ID. Your driving license gives you the right to drive. It’s not there to validate your address. Your passport defines which nation you belong to. We didn’t have any ID who could identify you,” said Sanjay Swamy, managing partner of Prime Ventures Partners, who was formerly associated with the Aadhaar project.

In 2010, Ranjna Sonawane of Maharashtra’s Tembhli village became the first Indian to get an Aadhaar card and ID.

And, Begins The Making Of India Stack APIs

Aadhaar was just the first piece of the puzzle, the equally-significant blocks such as eSign, eKYC, UPI, Digilocker were also being developed simultaneously under different authorities. Collectively they became India Stack, the world’s largest open API project in 2014.

“The idea was to bring services to the people and not the opposite. That’s how technology should be used to bridge the gap,” Speaking at a recent fireside chat with Tata Sons chairman N Chandrasekaran, Nilekani recalled.

So how has India Stack helped bring banking services to everyone’s doorsteps?

Tanuj Bhojwani, a volunteer and fellow at iSpirt Foundation which has been a pro-bono partner in the development of India Stack APIs narrates the story of Rajni, a vegetable seller who lives in the slums of Bhopal and has 3 children.

“Every morning Rajni borrows INR 300 from a local lender to buy vegetables from the mandi. And, every evening, she has to repay the money borrowed along with around 5% daily interest on the same.”

Rajni represents the majority of India, the ‘Bharat’ which does not have access to banks and credit schemes. In India, banks always look for some kind of asset while lending. For instance, home loans are offered against homes, car loans against cars and so on. No bank would give a loan to Rajni. The data lies with a local vendor who is aware of how much money Rajni makes and how much she would need to repay on a daily basis. However, the interest rates demanded by these local lenders are just way too high, he explained.

In contrast to the usual 10-20% annual interest rates, Rajni and others like her often have to pay an astronomical interest annually because of the daily interest.

This is where India Stack API directly makes an impact. Rajni could be easily offered personalised loan offers based on her cash flow and transactional data, argued Bhojwani.

Thanks to the umbrella architecture, India Stack has enabled NBFCs and startups to extend loans based on data such as cash flow, e-invoices and even social media data — loans are no longer about security or collateral.

India Stack Impact

Aadhaar Takes Centre Stage

While there has been plenty of controversies around Aadhaar, and some of them rightfully so as the document did not have legal backing for the longest time during its issuance, one cannot deny that the impact of Aadhaar has been huge.

However, Prime Venture’s Swamy said it’s not even 10% of the potential that Aadhaar holds. Let’s take a look at the direct benefit transfers which became possible only due to Aadhaar and further helped save INR 1,70,377 Cr for the exchequer over the years.

Accounting for a direct benefit transfer of INR 9,35,520 Cr so far with an estimated gain of INR1,70,377 Cr, the Aadhaar impact could also be understood by the fact that in FY 2019-2020 alone, over 399 Cr transactions took place as part of direct benefit transfers.

Solving Verifications With eKYC

KYC has been a tedious issue for banks, telecom operators, and other concerned companies. The documentation and authentication have not only been burning a significant part of all the company’s revenue but also takes much of their time. This was equally the case for customers too.

Swamy recalls how big this issue was. “Back in 2009, I was the founder-CEO of a mobile payments startup Mcheck. A lot of the challenges that we faced at Mcheck had to do around KYC…At that time, we only had paper-based KYC, so we had to collect the application forms from banks, then collect the photograph, send it to the bank and so on. Besides the huge cost involved, the turnaround time, at the best case, was about three weeks.”

Financial inclusion has been a significant achievement of India Stack.

According to Swamy, the KYC cost per customer was around INR 1,500 for a bank or mutual fund provider. So, even if the average commission is half a percent for mutual funds, it means that the customer has to give at least INR 300K a year in order to be eligible for a mutual fund. Now, there are hardly 14 Mn households in India that are capable of saving INR 300K a year. But with eKYC, the cost has been reduced from INR 1,500 to say INR 25, all of a sudden you can afford to have many more people capable of investing as low as INR 1,000 a month.

Cashless Grows On UPI

As defined by its governing body NPCI, the unified payments interface (UPI) is a system that powers multiple bank accounts into a single mobile application of any participating bank, merging several banking features, seamless fund routing and merchant payments through one window. It also caters to peer-to-Peer collect requests which can be scheduled and paid as per requirement and convenience.

Launched on April 11, 2016 by then RBI governor Raghuram Rajan, UPI has been the fastest growing payments transfer interface, clocking over 1 Bn transactions worth around $27 Bn in November 2019 and improving on the number of transactions every month since then.

With Aadhaar, eKYC, UPI infrastructure, digital lending in India has exponentially grown and has attracted a slew of companies to NBFC space. According to a joint study by Omidyar Network and Boston Consulting Group (BCG) digital lending to micro, small and medium enterprises (MSME) in India can grow to INR 7 Lakh Cr in disbursements by 2023, a 15x surge from current levels.

What Reliance Jio Owes India Stack

For the past half a decade, the world has coronated Reliance Jio as the king of the Indian market and credited India’s digital growth to the Mukesh Ambani-owned company. Launched on December 27, 2015, Reliance Jio is currently the market leader by subscribers with over 369.93 Mn customers.

Besides its free promotional offering, how did Reliance Jio achieve the impossible-sounding market share of 32.04% in such a short span? India Stack, Aadhaar and eKYC.

“Aadhaar enabled us to acquire a million customers a day, which is unheard of in the industry” – Mukesh Ambani, chairman, Reliance Industries Limited

While the Supreme Court ruling on Aadhaar use by private companies came much later, it was only due to Aadhaar-based eKYC, that Reliance was able to add seven new subscribers per second, reducing SIM card activation time from days to hours.

Having seen the success of Digital India and India Stack, even Pakistan’s Imran Khan announced Digital Pakistan and a Pakistan Stack on December 6, 2019. The attempt to replicate India Stack by its bitter rival is perhaps the biggest tip of the hat for the project.

The international impact of UPI can be understood by the fact that in November 2019, Google wrote to the US Federal Reserve urging it to develop a new real-time gross settlement service in line with UPI.

Even RBI is confident of UPI’s international potential. It stated last year that the advances made in India are ready to go global. “The technologies developed here should be considered for internationalisation. This will enhance our ecosystem, as well as increase the confidence amongst the users.”

The NPCI is already working with many international players for enabling UPI payments in Singapore and Middle East countries.

Recently, ACI Worldwide did a strategic investment in fintech company Mindgate Solutions. Philip Heasley, CEO and president, ACI Worldwide said, “We are a strategic investor in Mindgate. At this point, their plans are our plans and we are already working with them in Saudi Arabia and a few other places. This investment is kind of a tribute to UPI and other countries have been studying the UPI model so it makes sense behind this investment. The beauty of us being present in many countries is that we can globalise UPI. Our main focus is making UPI scale and work in India and then expand it to the rest of the world.”

Bhojwani and Swamy acknowledged the huge potential of UPI in the global arena, particularly in other Asian and African countries.

Despite the progress, there’s also been huge controversy around the India Stack APIs right since the development of Aadhaar. On the question of dealing with them, Nilekani recently told Vinod Khosla, “Ideally, the privacy laws should have been introduced first.”

The Consent Layer And Account Aggregator 

In July last year, Nilekani unveiled account aggregator and underlying consent layer API as Data Empowerment and Protection Architecture or DEPA. DEPA aims to democratise data access while enabling secure portability of trusted data between service providers.

DEPA created a new class of NBFCs called account aggregators (AA). Account Aggregators will provide data to a customer or user from a provider based on the user’s explicit digital consent. AAs were created through an inter-regulatory decision by RBI, SEBI, IRDAI, PFRDA and FSDC. However, like all NBFCs, it is the RBI which licenses and governs rules for AAs.

The account aggregator APIs are currently being used by a few, as part of a pilot project. In 2018, the RBI had issued in-principle licenses to 5 account aggregators. The numbers have gone up to seven now, three of the AAs have the operating license as well, according to Sahamati. The API will be formally launched in May 2020, confirms Bhojwani. “Account aggregator has been a concept for the last three years. It is a ridiculously complex thing to achieve. RBI calls it Account Aggregator. It is what the UK, Europe and many other countries have been trying to do with open banking. What they were trying to announce, India will soon get it done,” he added.

AA will phenomenally change banking, the whole industry. Every fintech segment, including insurers, even GST will be on account aggregators. So what’s going to happen is that every individual will finally have access to their entire financial life and the data, all financial instruments in one place, adds Bhojwani.

“Personalised finance products for people like Rajni,” Bhojwani highlighted.

In December 2019, Sequoia Capital India MD Rajan Anandan said that the account aggregator framework will bring in a new era for Indian fintech companies. Anandan said Sahamati will provide 10x the opportunity for innovation that UPI and other pieces of the India Stack puzzle did.

In today’s world, an individual’s or enterprise’s financial data is spread across silos and islands in banks, telcos, healthcare institutions with no framework in place for them to aggregate and share them with each of the stakeholders. Even when shared, the data is not structured to be interoperable. Aggregated data will give enterprises, corporations, banks, nonprofits and tech startups the full view of an individual or an entity’s data across these silos to inform product and service startups to build better offerings tailored for the individual or entity.

Sahamati’s website says, “An AA is ‘data-blind’ as the data that flows through an AA is encrypted and can be processed only by the financial information user for whom the data is intended. Also, an AA does not and cannot store any user’s data – thus, the potential for leakage and misuse of user’s data is prevented.”

The Final Form Of India Stack 

Over 1.2 Bn Aadhaar numbers have already been issued, billions of transactions are being run on UPI. While three out of the four layers are fully functional and account aggregator soon to be released, is India Stack a completed project now? Is this the final avatar of the venerable collection of APIs or is there more to come?

Bhojwani argues for the latter. When UPI, eKYC or eSign were launched, it created new markets for fintech and other players, he said. “If you were running a business, UPI was a huge game for you and, compared to that, the latest updates are a significant but marginal improvement.”

Swamy counts the offline KYC, video KYC after Supreme Court’s ruling on Aadhaar as significant achievements.

“UIDAI has also made significant developments in Aadhaar-enabled eKYC. It has launched offline KYC where the Aadhaar document itself can be in the form of an XML and as a user, I’m free to present it to anyone if I choose to, and the other party does not have to call an eKYC API. So now the KYC layer has actually been made much more robust,” he said.

But only a partial impact has been realised thus far. While a majority of the developments at home are almost complete, it is time to go global, according to Bhojwani.

International non-profit organisations such as the Gates Foundation have partnered with data intelligence companies such as SocialCops and have made investments of about $8 Mn to develop an India Stack for agriculture. Similarly, a National AI Stack, National Health Stack and other visionary digital frameworks have also been conceptualised which are expected to revamp these sectors as India Stack did for banking and finance. It is now conceivable to aim for digital health records for all citizens by the year 2022 if the NHS development sticks close to the roadmap.

These new ‘stacks’ will be usable by centre and state across public and private sectors. They represent holistic platforms that support the multitudes of verticals and their disparate branches and are capable of being integrated into future IT solutions and systems.

Rapid, disruptive changes usually don’t have a blueprint or a guide to follow. But India Stack could very well prove to the north star for digital transformation in every walk of life.