This article by Prasanth is about India’s different approach to open data and open finance.
India Stack is an open infrastructure built by the Indian Government which unbundled identity, signature, money exchange, document, and data exchange, allowing apps and solutions to be built easily. It comprises a plethora of digital public goods built by the Indian Government or the organizations associated with the Indian Government or in a public-private partnership model. This essentially focuses on three areas, the cashless layer, the paperless layer, and a presence-less layer.
The cashless layer aimed to reduce the dependency on physical currency and move to electronic or digital payment interfaces. In India, the Unified Payment Interface (UPI) is the flag-bearer of cashless payment. It is the fastest-growing real-time payment platform worldwide and is being adopted by many countries. The paperless layer wanted to reduce paper usage by digitizing required documentation. The presence-less layer is where you don’t need to be present, but you can use your digital identity to validate your presence.
These three layers came into existence in a gradual model from 2005. These brought a huge amount of change in digital adoption and transformation.
But, this did not solve all problems. The economy is still quite informal. So, there is a lack of access to the banks or bank representatives. Due to the informality, asset-based lending is not always possible, which leads to higher interest rates. Credit history is also not well managed and is not accessible. The primary problem that needs to be addressed is the availability of financial data to everyone concerned.
Data Empowerment and Protection Architecture
As an individual, I have a banking history with Bank A. My salary is credited to Bank A. But, I am going to Bank B for a loan, as they offer better interest rates. Bank B requires a plethora of documents; all signed hard copies. As a result, there is a duplication of records between Bank A and Bank B.
Four years ago, the Banking Authority in India, the Reserve Bank of India, organized a group to bring up a consented, real-time data transfer model. The output is the Data Empowerment and Production Architecture. This enables a consented secure transfer and sharing of a customer’s data based on the consent provided by the customer. This brings together the customer, the Financial Information Provider, the Financial Information User, and the Account Aggregator. All data is encrypted. Data access is provided in a consented manner and time-bound method. This data empowerment and protection architecture enables a customer to provide consent for a particular duration of time.
The Account Aggregator Ecosystem was built to ensure that this ecosystem’s different aspects and nuances are covered as part of this full set of regulations. The RBI is the banking authority that provides the regulations. RBI’s IT subsidiary built the API specifications. The ecosystem also has self-regulatory organizations, account aggregators, and central registries of different participants who will ensure public awareness by sharing keys and data types. Integrations, certifications, and security tools form the other blocks of the ecosystem.
This ecosystem started with only the banking regulator and then moved on to the insurance regulator.
So if FML has me, am I GST compliance with GST payment, how much tax I’m paying, all the details will be made available as part of this network. Right. And definitely the privacy technologies into ensure that the data is completely secure data is masked, wherever required everything right. And then, so this is a glimpse of the account aggregate records system right now. So here you can see how much of know the different set of entities that are be joining this ecosystem, like the banks, the insurance companies, these non banking, financial companies, the retirement investment advisors, the fintechs. And then the organisations which are providing the technical know how when capability. And then the API infrastructure services providers, there are payment platforms like the Google Pay, who leverages the UPI infrastructure for the making the payment.
The account aggregator ecosystem brought a consent layer to the India stack, ensuring a secure data-sharing framework and methodologies were established. It started with the financial services sector but has broadened its scope. Some of the current use cases being adopted and experimented on are Omni channel, Omni product loan origination, Continuous account monitoring, Data-driven PFM, and cash flow lending. In the future, it can be adopted anywhere data is securely shared.
Benefits to Financial Institutions
- Lower costs of customer acquisition – Eliminates paper-based processing
- Faster turnaround time – Digital technologies aid in faster underwriting
- Disintermediation – Direct to customers without intermediaries
- Innovation – Access to customer data will lead to innovative applications, leading to customers getting newer options.
- Applicability in other industries – Framework can be replicated across industries.
- Open data journey
- Balanced approach – regulator driven, not compliance driven
- Inclusive of the bottom of the pyramid
- Integrated with other stacks – India Stack, National Health Stack, etc