Naveen Kukreja – CEO& Co-founder, Paisabazaar.com
Saurabh Bhatia, my neighborhood kirana storeowner, wants to open a bank account in his name. However, the time and effort required for opening an account dissuades him from doing so. Just imagine the hurdles that he will face while opening a bank account. First, he will have to find out some time from his own business hours to visit the bank branch. While doing so, he also needs to carry all the original documents including his Aadhaar Card, PAN card, etc for verification purposes. Given the paper-heavy documentation process followed by our banks, the entire account-opening process can take a considerable time, running into days.
However, even if Saurabh succeeds in opening his account, he will still face issues with managing cash. As his is a small store having small-value transactions, most of his customers pay him in cash. After all, our present card-based payment system is too expensive for businesses like his, making hard cash the best bet for him and his customers. As a result, he would have to deposit this cash in the bank at regular intervals, forcing him to take time off from his business hours. These kind of hassles force most entrepreneurs like Saurabh to prefer hard cash over formal banking channels. The resulting absence of banking history also acts as a hindrance for accessing bank credit.
Thankfully, the government is aiming to create a cashless, paperless and presence-less citizen’s service through its ‘India Stack’ programme. The financial sector is expected to benefit the most from such cashless, paperless and presence-less system. Here is how!
IndiaStack is an open service delivery system conceived by a digital think-tank called i-Spirt. It has been structured like a 4-layered pyramid.
The First Layer: Digital Identity – Aadhar based
The first layer will provide a universal biometric digital identity based on your Aadhaar Card. This will enable online authentication through your fingerprint or iris, making your financial transactions truly “presence less”.
The second layer: Digital Locker
The second layer provides a “safe deposit locker” for storing your critical documents. These can be any document, such as your Aadhar Card or PAN Card or even your child’s CBSE report cards. You can access these documents from anywhere and can e-produce them to bank or other financial institutions for documentation and verification purposes.
The third layer: Digital Signature
The third layer is the digital sign layer. This will eliminate the need to physically sign the documents for opening bank accounts, applying for loans or credit cards or even investing in mutual funds. Instead, you can sit in the comfort of your home or office and sign the documents without actually taking out their printouts. These three layers will help in creating a “paperless” and “presence-less” banking system.
The fourth layer: Payment interface (UPI)
The fourth layer consists of Unified Payment Interface (UPI) built by the National Payment Corporation of India (NPCI). This layer is aimed at making money transfers as simple as sending an e-mail. Unlike the current money transfer systems where you have to type your card details, login IDs or netbanking/wallet password, UPI system will only require your bank-provided virtual payment address (for example, amit@xxxbank) and a mobile banking PIN (MPIN). This will enable seamless movement of funds between people, banks and mobile wallets and help in realising a truly cashless banking system.
Now, how will India Stack benefit someone like Saurabh?
First of all, the India Stack system will do away with the requirement of presenting original documents for KYC processing. The system will allow Saurabh 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 loan documents or KYC-related documents without worrying about visiting bank branches.
The ease of the receiving and making payments through the UPI system will encourage Saurabh to take cashless payments from his customers. The frequent transactions through his bank account will also help in creating a banking history, which might help him in securing bank loans in future. The integration of e-KYC, e-sign and UPI layers will also enable banks to instantly process his loan application and disburse loans.
However, it is not just Saurabh’s use-case that will benefit from this open digital infrastructure. India Stack has the potential to transform the entire financial landscape by enabling product innovation, reducing customer acquisition and operating costs, and enabling larger sections to access financial products. Being a free digital infrastructure, India Stack will allow the tech-start-ups and app developers to challenge the incumbents through unique product innovations. For example, the data created from bill payments, digital identity, social media and customer transaction history can be used for developing customized solutions like daily insurance policies, intra-day loans and mobile credit cards. Product innovations based on “cashless, paperless and presence-less transactions” will also bring down the customer acquisition and operating costs for the financial institutions. These will reduce the cost of servicing banking consumers and allow the banks and NBFCs to improve credit access for the masses. The ease of doing “paperless and presence-less” transactions will also help fintech companies to increase the penetration of mutual funds.
By Naveen Kukreja – CEO& Co-founder, Paisabazaar.com
(Published in Business Standard on October 8, 2016)