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Nandan Nilekani: Identity, Payments, Data empowerment 2019

India recently kicked off the Data Empowerment architecture, a framework for consented data sharing across the financial sector. This allows Nandini (Persona) to share data on her business’ regular invoices or GST payments seamlessly and securely.

Any bank or NBFC can now offer a regular stream of small-ticket working capital loans based on her demonstrated ability to repay. This is in sharp contrast to the status quo, where banks typically offer only larger loans backed by collateral. Using cash flows rather than collateral as the basis for credit is known as Flow-Based lending. Because producing collateral is a roadblock for the poorest Indians, Flow-Based lending may be their only opportunity to access the credit they sorely need for growth.

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Nandan Nilekani: Identity, Payments, Data empowerment 2019

  1. 1. IDENTITY, PAYMENTS & DATA EMPOWERMENT Nandan Nilekani, 2019
  2. 2. 1 2 3The Three Challenges of Financial Inclusion Access Retention Bring population in the financial system Keep them in the system Data sharing without compromising privacy Data Empowerment 2
  3. 3. 1 Part 1 Solving the Access Challenge Access Bring population in the financial system 3
  4. 4. In India, back in 2008… Financial exclusion was rampant 17%had bank accounts Source : A Demirgüç-Kunt, L Klapper, D Singer, S Ansar, and J Hess, “The Global Findex Database 2017: Measuring Financial Inclusion and the Fintech Revolution”, World Bank, 2017 4
  5. 5. The unbanked number in 2011 was in line with the global scenario 2011 fitted line India, 2011 Source : A Demirgüç-Kunt, L Klapper, D Singer, S Ansar, and J Hess, “The Global Findex Database 2017: Measuring Financial Inclusion and the Fintech Revolution”, World Bank, 2017 5
  6. 6. By 2018 India had massively jumped ahead in financial inclusion 2011 fitted lineIndia, 2018 India, 2011 Source : A Demirgüç-Kunt, L Klapper, D Singer, S Ansar, and J Hess, “The Global Findex Database 2017: Measuring Financial Inclusion and the Fintech Revolution”, World Bank, 2017 6
  7. 7. Traditional development would have taken half a century 46 years 2011 fitted line Source : BIS Analysis 7
  8. 8. This acceleration was due to 3 things India StackPolitical Will Proactive Central Bank 8
  9. 9. India Stack is a set of technologies ... Identity Layer Giving every resident a unique id and enabling them to prove “I am who I claim to be” Payments Layer Allowing anyone to pay anyone else! interoperable, fast and cheap - not just smartphones Data Empowerment To enable secure sharing of data ➔ Unified Payments Interface ➔ Aadhaar Payments Bridge ➔ Aadhaar Enabled Payment Service ➔ Aadhaar ➔ eKYC ➔ eSign ➔ Consent Artefact ➔ DigiLocker ➔ Account Aggregator 9 Identity Layer Payments Layer Data Layer
  10. 10. … built over time AA: Data Fiduciary DigiLocker: Document Repository Consent Artefact 2009 2011 2013 2015 2017 2019 Aadhaar eKYC eSign IMPS: Instant Remittance UPI APB: Cash Transfers AEPS: Biometric Payments 10 Identity Layer Payments Layer Data Layer
  11. 11. India started by addressing identity Verifiable identity key for inclusion 1 in 25 had unique identification in 2008 Source : 40 million Indians had passport, which was the only unique identity at the time. Aadhaar: Inclusive by Design, GSMA, March 2017 % Population With Identity %PopulationWithAccount 11
  12. 12. Unique identification features Biometric 123456789012 12 digit Aadhaar number 4 Data Points A Unique Identity - Aadhaar 12
  13. 13. Aadhaar Adoption - 1 Billion in 5½ years Data Source - Aadhaar Dashboard ( Noofenrolledindividuals(inmillions) 13
  14. 14. Aadhaar use since inception eKyc vs Auth Biometric / OTP/ Demographic Auth Data Source - Aadhaar Dashboard ( 40.5 Bn 33 Bn 14
  15. 15. Identity Aadhaar - Impact 1.2 Bn Aadhaar IDs issued 33 Bn Aadhaar based authentications 7.5 Bn e-KYC transactions $32.4 Bn Direct Benefit Transfer to beneficiaries 647 M Aadhaar enabled accounts Data Source - Aadhaar Dashboard ( NPCI Statistics ( 15
  16. 16. Aadhaar adoption paves way for the largest increase in financial accounts across 140 countries 45 percentage points 2017 2011 Income gap 14 5 Education gap 29 10 Closing the gaps on marginalized groups 35 % with account 80 Gender gap 17 6 Employment gap 18 9 Source : A Demirgüç-Kunt, L Klapper, D Singer, S Ansar, and J Hess, “The Global Findex Database 2017: Measuring Financial Inclusion and the Fintech Revolution”, World Bank, 2017 16
  17. 17. A survey of 167,000 people over 28 states and UTs supervised by a technical and advisory board consisting of Aadhaar supporters & skeptics. Source : State of Aadhaar, 2019 17 For 8% of adults, Aadhaar was their first ever ID especially the vulnerable. Aadhaar is the first ID for 15% of homeless populations 14% of third-gender populations 92% were either Somewhat or Very Satisfied 80% of beneficiaries feel Aadhaar has made PDS rations, MGNREGS or social pensions more reliable Using Aadhaar people are 40% more likely to obtain a new SIM card within one day
  18. 18. 2 Part 2 Addressing the Payments Challenge Retention Keep them in the system 18
  19. 19. People are seeking digital ways to transact Users are looking for a MAGICAL payment experience. Mobile-First, Anytime, Global, Instant, Convenient, Assured Safe, Low-cost 19
  20. 20. How UPI Works Open, Contestable Entry Mobile Internet Digital Wallet 3rd Party Apps Consumers Business Bank A Regulated Banks (payment service providers) Payment Rail Interoperable between sources of funds Interoperable between recipients of funds Unified Payment Interface C2C Payments Instant Remittances C2B Payments Bank B B2B Payments Unregulated Fintechs Instant 24/7 Interoperable Low-cost Fintech/ Bigtech Friendly Settled in fiat money Inside the banking system 20
  21. 21. Customers can conduct transactions on their State Bank of India account from inside their Citibank mobile banking app. Fully Interoperable payment systems Instant 24/7 Low-cost 21
  22. 22. WhatsApp integration with UPI 1 million customers in beta already, potentially 400 million customers in India will be able to send money through WhatsApp Settled in fiat money Inside the banking system Source : “WhatsApp reaches 400 million users in India, its biggest market”, TechCrunch, Jul 26, 2019 22
  23. 23. Digital Payments 2017-18 2018-19 UPI 4% UPI 17% Electronic, 53% Electronic, 48% Cards & Prepaid 40% Cards & Prepaid 35% Electronic includes: Internet and mobile banking, and other digital payments Cards & Prepaid includes: Credit cards, debit cards and prepaid payment instruments (Paper vouchers, prepaid cards and mobile wallets) UPI Impact – increasing digital payments Source : RBI Database on Indian Economy ( 23
  24. 24. UPI transactions have overtaken credit and debit card payments Source : Retail Payment Statistics on NPCI Platforms 24
  25. 25. 3 Part 3 Addressing Data Sharing & Privacy Challenges Data sharing without compromising privacy Data Empowerment 25
  26. 26. User Data is being appropriated Internet Platforms gather and retain user data in proprietary silos. The problem is not simply that companies are benefiting from this data. The problem is that the people aren’t Account Aggregators rebalance that equation 26
  27. 27. The Account Aggregator will facilitate consented sharing of financial information in real-time Bank Mutual Fund House Insurance Provider Tax / GST Platform Flow-Based Credit Personal Finance Management Wealth Management Robo Advisors Financial Information Providers Financial Information Users Account Aggregator 3. Data Flows to FIUs End-to-End Encrypted 1. Consent to share data 2. Request Data through Open APIs 27
  28. 28. The Account Aggregator is a Consent Manager 000101 AAs enable consumers to selectively share & even revoke data once shared. The AAs have a fiduciary duty to consumers 100111 0 1 0 0 1 1 AAs cannot read consumer data. They cannot resell consumer data. 28 7 AAs have in-principle approval. 1 AA has operational license 10 FIU/FIPs from leading banks and NBFCs
  29. 29. Digital Footprints Consented Data Sharing Business Micro-Credit Business Growth Tax Returns & Bank Statements With the Account Aggregator, Rajni can demand ● Her Tax returns ● Her Bank & Account Data ● Her Home Loan repayment record be shared with Lenders Thus, securing a loan with her richer digital footprint. Small Business Owners can get credit using data 29
  30. 30. With the Account Aggregator, Rajni’s lender can view her data ● Directly from Source ● Tamper-proof ● At a low-cost ● In real-time Using data, Lenders can better monitor cash flows and anticipate default before it happens! Digital Systems offer new tools to manage defaults Digital Systems enable early-warning systems & more precise regulatory intervention 30
  31. 31. Account Aggregators keep consumer financial data safe & make its usage auditable But they also make it useful for consumers India is leapfrogging to a Data Democracy Data is used to sell things to consumer Data to be used to empower consumer This inverts usage of Data! 31
  32. 32. 1 2 3 Putting in Perspective: Innovation in the Digital Age Access Retention Bring population in the financial system Keep them in the system Data Empowerment Data sharing without compromising privacy 32
  33. 33. Creating a flywheel for Financial Inclusion Access Open Bank Accounts Retention Offer MAGICAL Payments Use Data to give credit Data Empowerment Incoming Payments e.g DBT Share Data Securely Build Trust & Encourage More Users in System 33
  34. 34. Platforms not Pipes The old way of innovating was to build end-to-end solutions In the digital world, the method of innovation are platforms 34
  35. 35. Information Discovery Knowledge Democratization Government Services Social Networking e-Commerce e-Learning Urban Mobility One Internet, many applications Internet Infrastructure 35 TCP/IP, WWW GPS, Cloud Smartphones
  36. 36. One INDIA STACK, multiple innovative and inclusive solutions Direct Benefit Transfer Jan Dhan Financial inclusion Health Insurance Faster Payments Skilling & Education Digital Lending Tax Reform India Stack Infrastructure 36 Identity Layer Payments Layer Data Layer
  37. 37. Unregulated Fintechs Regulated Players India Stack on top of public infrastructure of India Stack India Stack Way Development Friendly, Layered Innovation Building a culture of Innovation... through regulated and unregulated private players 37
  38. 38. Banks Clearing Houses Central Bank Analog Way Closed System, Slow Innovation Unregulated Fintechs Regulated Players India Stack Way Development Friendly, Layered Innovation Crypto Wallets Stablecoins Blockchain Big Tech Way Walled Garden, Layered Innovation India Stack 38
  39. 39. Thinking with Technology resolves trade-offs Regulation VS Innovation Privacy VS Personalization Ease of Use VS Fraud Prevention Regulation AND Innovation Privacy AND Personalization Ease of Use AND Fraud Prevention 39
  40. 40. 30 yr Architects 10 yr Planners 5 yr Doers • Think Tanks • Universities • Research Labs • VCs • Policy Makers • Incumbents • Challengers iSPIRT Foundation: a Tech Think-and-Do Tank Bringing an Orbit Shift by building Public Goods without Public Money 40
  41. 41. What makes iSPIRT Special? Volunteer-driven Social Production iSPIRT is about Social Production Volunteers selflessly pay-forward for a better India. We avoid mission capture in any form. ➔ No public money (Linux, Wikipedia) ➔ No MNC money ➔ Every volunteer works only in areas where they are conflict free 41
  42. 42. Start Small Start Anywhere Start Today A Stack-like approach is accessible by everyone 42
  43. 43. THANK YOU