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Expert opinion

Fintech innovation in India – payments at your fingertips

Tuesday 12 December 2017 | 09:56 AM CET

Manoj Kheerbat from Gropay tells us to forget about cards or smartphones, as in India it’s possible for a consumer to authorise and authenticate a payment with their fingerprint.

This is only one of the areas in which India is innovating as part of a wider long-term program for inclusion made possible through a core fintech API layer called India Stack.

What is the India Stack?

After realizing that they could not deliver services efficiently on their own to a 1.2+ billion population, the Indian Government has created the India Stack - the largest API enabled technology platform that allows massive and transparent data exchange and stronger collaboration between the government, private companies, entrepreneurs and the general public.

India Stack is built on four layers:

  • Presence-less layer: by creating a universal biometric digital identity for each Indian citizen, the government enables people to participate in any service from anywhere in the country ;

  • Paper-less layer: as digital records are part of the individual’s digital identity, paper records are eliminated;

  • Cashless layer: a single interface to all the country’s bank accounts and wallets democratizes payments

  • Consent layer: allows data to move freely and securely to democratize the market for data

Ban on high denomination cash

The ban on high value cash in India in late 2016 received a lot of press as an attempt to weed out corruption and bribery. While the success of the cash ban initiative in curbing corruption is being debated, the ban fits perfectly in India’s long term plans to leverage the Cashless layer of the India Stack.

Compulsory biometric registration

The Indian government has also initiated a compulsory biometric authentication database called Aadhaar. As a result of this initiative, there will no doubt be discussions about the privacy concerns around a biometric database for residents. However such a technology has the potential to leapfrog many payment infrastructures and protocols to a simple country and resident wide biometric payment system.

Linkage to banking system

By 31 December 2017 each bank account in India must have a resident number associated with it. Resident numbers can be obtained easily at many outlets around the country by simply providing a fingerprint and/or iris scan. All bank accounts will therefore be linked to biometric data by 31 December 2017.

At the POS

Retail outlets can replace their existing POS systems with an inexpensive (approximate cost of USD 30) fingerprint POS device which is linked to a smartphone enabled app. As part of the payment process, the retailer rings up the amount at the cash register, the consumer simply scans their fingerprint at the POS device and chooses the bank account from which the payment is to be made.

The authentication and transaction data are processed by a central clearing house and the payment amount transferred from the payer to payee.

Costs are kept low

There are no costs to the use of the authentication database or clearinghouse. Individual bank accounts may apply fees for outward or inward remittances; however these are regulated and for the most common retail payment amounts (below USD 200) cannot exceed the equivalent of USD 4 cents, so a maximum total cost of 2 basis points.

Limitations from internet availability

The smartphone enabled app being used by the payee requires an internet connection to reach the clearing house. However it is estimated that 87% of the Indian population is covered by an internet capable mobile network.

Financial inclusion for the unbanked?

It’s believed that 19% of the Indian population is still unbanked. However, the Indian Government and the Reserve Bank of India (RBI) have made several concentrated efforts to promote financial inclusion. These efforts include the launch of cooperative banks and regional rural banks (RRBs), introduction of mandated priority sector lending (PSL) targets, formation of self-help groups, and appointment of business correspondents by banks to provide door-step delivery of banking services.

Impact on the poor

Financial access, the ability to save and pay efficiently, and to borrow at low rates are key requirements for reducing poverty. The India Stack, reduction of cash and provision of inexpensive and universal access to payments and financial services helps to do this.

Conclusion

India has a unique challenge with 1.2+ billion people with many uneducated and in poverty. India Stack is an innovative initiative to address this challenge. The reduction of cash and biometric access to payments and financial services are important steps in leveraging the stack to deliver financial services to India’s vast population. More innovations based on the Stack are bound to follow, one of the most interesting to keep an eye out for in 2018 will be IndiaChain, a government endorsed Blockchain network. IndiaChain will feed into and leverage IndiaStack to reduce fraud and speed up contract enforcement.

About Manoj Kheerbat

Manoj is founder and CEO of Gropay, an Amsterdam based payments and fin-tech consultancy.
Manoj is on a mission to deliver exceptional, measurable benefits and value to the ‘last mile’ of B2C payment delivery – the online merchant and their immediate service providers.

About Gropay

Gropay was founded in 2008 and delivers payment focussed consultancy and interim management across the globe. Gropay specialises in 4 key service areas:

Growth: Bus Dev, Global Expansion, Relationship Management and Talent Acquisition

Operations: Product, risk and fraud management

Compliance: Regulatory and contractual

Mergers and Acquisitions: Due diligence and acquisition management

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