Smita Aggarwal
Director, Investments

India Shows the Way to Innovate for Financial Inclusion

March 7, 2017

Right now, India is one of the most exciting places on Earth for financial inclusion. We’re home to a dynamic startup scene and, boasting a new regulatory framework and digital infrastructure, in the last couple of years, India has catapulted itself to the forefront of financial innovation with the rollout of the India Stack—a set of technology platforms built by the government and offered as digital infrastructure to financial services providers.

To learn from Indian FinTech entrepreneurs and innovators, Omidyar Network hosted a full-day discussion in Mumbai in February at our event “TechForward: Building Financial Services for All”.
Several of my colleagues and experts in digital finance from around the world joined us to talk about the possibilities created by the India Stack and how to seize the great momentum our country is experiencing.

Coming from Silicon Valley, New York, Washington DC, London, Cape Town, Yangon, and Lima, we were all excited by the India Stack’s promise to advance financial inclusion through scalable, low-cost, digital platforms. Built on Aadhaar, the government has approved biometric authentication for Know Your Customer (KYC) requirements allowing fast, affordable eKYC for 1 billion Indians.

On this platform, the government has also layered on e-signatures and the Universal Payments Interface, run by the National Payments Corporation of India. This is a new, retail payments system that enables near real-time transfer from any-to-any accounts. 

Provided as a public good, the India Stack functions like an open API: a series of software standards for this digital payment system which allows private sector entrepreneurs to unbundle traditional financial services and then re-bundle them for a new “user experience” of personal finance.

Different players are positioning themselves to fulfill various roles best suited to their core strengths, such as demand aggregators, data-driven marketplaces, and front-end, asset-light service providers backed by holders of regulated balance sheets. The most powerful tool for data gathering and sharing of course, is the smartphone. In 2016, India surpassed the US to become world’s second largest smartphone market, after China.

There are about 225 million smartphone users in India, and that’s just 18 percent of the population. Most of the competition, therefore, is on the consumer-facing layer of technology: Designing new user experiences for people—formerly excluded—to save, access credit, and use other financial tools to smooth irregular incomes and expenses.
This means there is a lot of innovation around “soft technologies”, to better understand consumers, such as:

  • Behavioral insights: Studying the unconscious behavioral and decision-making biases we all have. These insights often show that we need to think beyond traditional product siloes and focus on how people actually behave
  • Human-centered design: Putting the user first to deliver a better banking experience to consumers
  • Rapid prototyping: Rather than waiting to discover one great design, trying different approaches based on what works

Built on the emerging digital payments system enabled by the India Stack, and delivered on smartphones, these innovations are making it possible for all 1 billion Indians to carry what we call a "Pocket Einstein"—access to Nobel-winning economics knowledge at their fingertips, in order to make their financial lives easier.

This is what makes India exciting on the global financial stage: These innovations, and the policies that underpin them, are lessons that can be carried to other markets. Following this blueprint could rapidly bring millions of people out of the informal economy and into full financial inclusion—making our goal of reaching 2 billion people who are financially underserved around the world today an attainable one.

Watch sessions from our TechForward event:
TechForward India: Playlist 
Big Data, Small Credit: Innovations in Credit Assessment 

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