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How Did the India Stack Drive Financial Innovation?

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October 21, 2022
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Before we dive into how India Stack is driving financial innovation in India, we want to take a step back and simplify - What is India Stack?

India Stack is a family of Application Programming Interfaces (APIs) sitting on top of the biometric-enabled Aadhaar system. It aims to provide a way to build a digital world around a unique identification number. Using such interfaces, applications are designed for desktops, phones, wearables, etc. 

Now you might be wondering how this entire ecosystem works, let’s discuss it in detail. 

Interlinking India Stack & Aadhaar

The Indian government leveraged the biometric-driven identity, Aadhaar to create applications and software to usher in the digital economy era in India. Here is where the concept of an open technology platform or application programming interface (API) comes in.

This open-technology platform is an intermediary software that allows seamless access to authentication, authorization, and transfer of funds and data between banks, customers and fintech firms. All pivoted on the unique identification number. The controls to access all private information are through individual consent. 

Thus, India Stack has paved the way for a safe and effective way to lead Indians into a more accessible and efficient financial world. 

How’s this link driving financial innovation in India?

The Aadhaar-enabled payment system has made it possible to develop mobile banking and peer-to-peer payments, simplifying payment infrastructure. These products and services were impossible before because there was no way to verify the customer’s identity. With the Aadhaar-enabled payment system, customers can use their mobile phones to authenticate themselves using their fingerprints or iris scan. 

Many government organizations already substantially rely on Aadhaar for their programs. Thousands of "duplicate accounts" have been removed, thanks to Aadhaar-based authentication, which has also helped assistance programs save billions of dollars.

It’s because of Aadhaar that an Indian farmer no longer needs to wait in line to receive his monthly farming subsidy. Instead, the government can electronically verify his identity and then deposit the subsidy via UPI directly to the farmer's bank account that is connected to his Aadhaar.

But outside of the government, the India Stack offers commercial companies chances to enable disruption. Businesses can access consumer segments that were previously out of their reach by lowering the cost of both customer acquisition and ongoing maintenance.

All of a sudden, we have moved from a society where small street vendors do not even have a bank account to one where the same vendors now conduct all of their transactions digitally, utilize the data to get credit, expand the business, and even invest their savings profitably.

The India Stack has essentially created a digital gateway to the entire financial world. 

What’s in the future?

With different stakeholders sharing data and funds through secure portals and people transferring funds with a swipe, we have come a long way on the financial journey. Thanks to this complex API of India Stack, the Indian government was able to send subsidies through UPI and Aadhaar-linked bank accounts to BPL citizens during the pandemic by digitally confirming their identity. 

With more fintech companies coming into play and the ever-increasing faith of netizens in digital transactions and low-cost fund transfers, the digital economy is set to grow manifolds over the years. India Stack is the highway to an unprecedented and secure financial world. 

Komal Chawla

Writer-by-chance and overthinker-by-choice, raging a war against the Pineapple-on-pizza brigade

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