 "aadhaar")
The government and a digital think-tank called i-Spirit (comprising people who built the government's Aadhaar initiative) are working together on a technology called IndiaStack. This has the potential to bring down costs involved in financial transactions, make account opening with banks, mutual funds, etc, easy, and also make the process paperless and quicker. The technology platform also has the potential to bring down cash transactions in the economy.
How it works
IndiaStack is structured as a four-layered pyramid, where all or a combination of these can work together.
Aadhaar-based digital identity: The first layer will provide a universal biometric digital identity, based on your Aadhaar details. This will enable online authentication through the fingerprint or iris.
Digital locker: The second layer provides a safe deposit locker for storing critical documents. These can include your Aadhaar details, PAN details or even your child's school report cards. An individual can access these documents from anywhere and digitally send these to a bank or to any other financial institution for documentation and verification.
Digital signature: The third layer is the digital signature. This will eliminate the need to physically sign documents for opening bank accounts, applying for loans or credit cards, or even for investing in mutual funds. Instead, you will be able to sit in the comfort of your home or office and sign the documents without actually printing them. These three layers will help create a paperless and presence-less banking system.
Payment interface: The fourth layer consists of the Unified Payment Interface (UPI) built by the National Payments Corporation of India (NPCI). This layer is aimed at making money transfers as simple as sending a text message or an e-mail. Unlike the current money transfer systems, where you have to type your card details, user names or net banking/wallet password, UPI system only requires your bank-provided virtual payment address (like amit@xyzbank) and a mobile banking PIN (MPIN). UPI enables seamless movement of funds between people, banks and mobile wallets, thereby incentivising use of digital payments, rather than cash.
Makes your life easy
Consider the case of Saurabh Bhatia, a grocery store owner, who wants to open a bank account. He has been postponing this task, as he will need to visit a bank at a time when he is needed at his shop. He will also need to carry original and photocopies of documents to provide proof of identity and address, then wait for the bank to process his request. It will take him at least a couple of working days to get an operational account.
His store being small, Bhatia's customers pay in cash for mostly small-value transactions. He doesn't use card-based payment as it is an added cost to his business. But, he will need to visit the bank every time he needs to deposit money. Hassles like these cause entrepreneurs like Bhatia to prefer cash over formal banking channels. It also means they don't have a proper banking history, a hindrance for accessing bank credit. IndiaStack has the potential to manage all the worries of someone like Bhatia.
First of all, the platform will do away with the requirement of presenting original documents for KYC processing. The system will allow Bhatia to directly produce the documents from his digital locker to the banks. The digital locker will further solve his problem of safekeeping and allow anytime access to important documents. With the digital signature feature, he can sign-off on loan documents or KYC-related documents without worrying about visiting bank branches.
The ease of payments because of UPI will encourage more customers to make payments to Bhatia using the banking channel. The frequent transactions through his bank account will also help create a banking history, which could help him secure bank loans in the future. The integration of e-KYC, e-sign and UPI layers will also enable banks to instantly process his loan application and disburse loans.
IndiaStack also has the potential to reduce the costs involved in other financial transactions. At present, the cost of acquiring a customer for a mutual fund or a bank is Rs 1,200-1,500. Most of this goes into document collection, verifying these, going back to customers if there are errors, and so on. If a fund house spends that kind of money to get a customer, it uses commissions to cover the cost. IndiaStack will allow fund houses to do all these tasks online for as little as Rs 10. Fund houses can pass on this benefit to the investor. All the information is pulled with the consent of the customer. Similarly, banks can lower processing fees on a loan.
Better financial products
However, it is not only Bhatia who will benefit from this open digital infrastructure called IndiaStack. The platform has the potential to transform the financial landscape by enabling product innovation, reducing customer acquisition and operating costs, and enabling larger sections to access financial products.
The data created from bill payments, digital identity, social media and customer transaction history can be used to develop customised solutions like daily insurance policies, intra-day loans and mobile credit cards. Lower customer acquisition and operating costs will reduce the cost of servicing banking consumers and allow banks and non-banking financial companies to improve credit access for the unbanked population.
The writer is CEO and co-founder, Paisabazaar.com
INDIASTACK TO REDUCE COSTS
-
Send documents using DigiLocker for identity and address proof
-
Get KYC done instantly online
-
Documents can be signed online using digital signatures
-
Once on-boarded, instantly transact using UPI
-
Institutions pay a fraction of current cost they incur for customer acquisition
- Lower costs can be passed on to customers in form of lower commissions and processing fee
