How India stack built the digital economy

Updated: Jan 3

India’s push to be a digital economy and make financial services accessible, paperless and affordable across different classes, is built on the strong foundation of India Stack. Let’s take a deeper look into what this means.

 

In order to tap into the full potential of any economy, access to financial services is extremely crucial. Traditionally, the economic system of a country was not designed keeping financial inclusion in mind. There used to be major barriers emanating from legal frameworks, societal attitudes and high transaction costs that only discouraged participation from individuals. One of the most powerful ways to overcome these was through digital technologies.

The digital payment space in India has seen significant growth in the past few years, with the volume of transactions increasing at an average compound annual growth rate (CAGR) of 23%.



The launch of new and innovative payment products such as Unified Payments Interface (UPI), Bharat Bill Pay Service (BBPS) and National Electronic Toll Collection (NETC) have placed the digital payment industry on a growth trajectory. However, the foundation for all of this springs from IndiaStack, the underlying platform on which digital India is built.


What is India stack?


India stack is the country’s digital financial infrastructure which is erected on the open application programming interface (API) and the biometric-enabled Aadhaar system. It allows governments, businesses, startups and individual developers to use the digital infrastructure and achieve paperless and cashless delivery.

It is designed to onboard public and private sector innovators to operate within a regulatory infrastructure regardless of their size. It consists of three layers of open APIs: identity, payments and data sharing. This resulted in most Indians moving to digital payments through the UPI infrastructure and expedited loan approvals with the adoption of eKYC and digital signatures.


An inclusive digital economy


About 95% of India’s population is now registered with Aadhaar. This broad coverage is especially impressive, given the huge chunk of rural population in the nation and the many low-income households. The rapid proliferation of the UPI network in India’s domestic commerce, is another significant milestone of India Stack.

The launch of new payment products, a growing need for faster payment modes and the increased adoption of smartphones has been the driving force in establishing the country’s digital payment systems. This was complemented with a strong push from the government and regulators to adopt digital channels.

While Aadhaar allowed for easy identity verification, the Pradhan Mantri Jan Dhan Yojana (PMJDY) helped make financial services such as pensions, insurance and bank accounts accessible and affordable to low income individuals.

Additionally, India Stack came with an enormous potential to digitise small businesses and open up economic opportunities for the poor. Small kirana stores began placing QR codes for payment, thereby boosting the volume of digital payments and turning the project into a big success.



Not only has the project been effective in bringing millions into the formal economy and reducing paperwork, it has also improved accountability, transparency and leakages in service delivery.


Fintech and the future of finance


Fintech is making the experience of banking and finance more intuitive, personalised and empowering. And, India Stack served as a firm backbone to make India a progressive fintech nation.

The push for a digital-first economy has helped shape the country's fintech sector. It has allowed businesses to employ emerging technologies and ease the gap between financial companies and customers. The development of layered platforms that can deliver functionalities to various stakeholders further strengthened the ecosystem.

The seamless transition that India Stack allows, offers fintech companies the ability to build credit marketplaces, where a loan service provider enables the end-to-end digitization of cash flow-based lending for domestic businesses.

The blend of exponential technologies and financial services will continue to be critical in improving the digital economy. Armed with new data and analytics capabilities and almost zero processing costs, fintech players are complementing and, in some cases challenging traditional banking and financial services institutions globally.

 

Edited by Roshni Shroff

Cover Illustration by Jyothi Syam

 

Some resources to help you understand more about India's fintech ecosystem:

Why India is at the forefront of a fintech revolution

FinTech 2.0: A new era of financial inclusion