What is India Stack
India Stack is a set of open application programming interfaces (APIs) that allows governments, businesses, startups and developers to utilize a unique digital Infrastructure to solve India's hard problems towards presence-less, paperless, and cashless service delivery. This digital infrastructure is interoperable and “stacked” together — meaning that private companies can build apps integrated with state services to provide consumers with seamless access to everything from welfare payments to loan applications.
In my previous blog “India Stack: Background, Layers and Impact of Population Scale Digital Infrastructure” I discussed at length how different layers of India Stack have acted as decentralized, interoperable, building blocks to unleash inclusive innovation and enabled financial inclusion for India’s population at large. In this blog, I will talk in more depth about the growth of financial services and products as a state-supported and privately led, tech-driven fintech ecosystem.
India Stack: Five Key Pillars Digitizing the financial system
Today, Indians are using fintech for payments, lending, insurance, wealth generation, blockchain and even cryptocurrency. Currently, Payment is dominating the chart with bill payments, tickets being done primarily from cell phones. Payment fintech accounts for 20 per cent of Indian fintech sector. Apart from payments, lending platforms, co-lending platforms, instant loans, and short-term loans are some of the other segments quickly emerging on the horizon.
The five key pillars of India Stack - Aadhaar, electronic Know Your Customer (eKYC), Unified Payment Interface (UPI), DigiLocker and Account Aggregator - have had a transformative impact on the Indian fintech ecosystem, enabling faster, cheaper, and more efficient delivery of financial services. India Stack has been implemented in stages, with the first step being the introduction of the Aadhaar Universal ID numbers in 2009. The subsequent stages of India Stack have included the introduction of eKYC (electronic Know Your Customer), which facilitates paperless and swift verification of identity, address, and other relevant details. This was followed by e-Sign, which allows users to attach legally valid electronic signatures to documents, and UPI (Unified Payments Interface), which enables cashless payments. The most recent addition to India Stack is DigiLocker, a platform for issuing and verifying documents and certificates and Account Aggregator, which as a ‘data bridge’ allowing financial information to be transferred from one financial institution to the other (with prior customer consent). These five pillars have played a significant role in growth of Indian fintech ecosystem, as explained below.
Aadhaar’s role in Fintechs:
Aadhaar has played a critical role in promoting financial inclusion in India, enabling easier access to financial services for people in remote and underserved areas. It is used for verification, which is required to open bank accounts, apply for loans and get access to other financial services online.
eKYC’s role in Fintechs:
Fintechs utilizing eKYC have witnessed easier, more secure and cost-effective customer onboarding. eKYC has led to the growth of digital lending platforms because they are able to onboard customers more quickly and efficiently. eKYC has also been used for mobile wallet verification, enabling customers to use digital wallets for transactions.
UPI’s role in Fintechs:
UPI has had a transformative impact on the Indian fintech ecosystem, enabling easy and secure transactions for users. It has made digital payments accessible to a large number of people, including those who were previously excluded from the formal financial system. UPI has also facilitated the growth of digital lending platforms, allowing customers to access loans quickly and easily. As of November 2023, UPI saw the participation of 458 banks and recorded more than 10 billion monthly transactions worth over US $176 billion. A fintech app only needs access to a set of APIs to get access to all those 458 bank accounts across the country.
DigiLocker’s Role in Fintechs: DigiLockers have a lot of potential in Fintechs. DigiLocker helps reduce time for physical document verification and also improves customer experiences. It has been used for e-KYC verification, enabling customers to onboard quickly and easily. DigiLocker has also been used for digital authentication, enabling secure and efficient transactions online. These qualities of DigiLocker implementation can be useful in enabling Fintechs to scale quickly.
Account Aggregator’s Role in Fintechs:
Currently there are 94 banks which are on board with the Account Aggregator platform as Financial Information User (FIU) and there are 26 Financial Institutions that are on board as Financial Information Provider (FIP.) This enables the 26 FIP’s to transfer an individual’s financial information, given their consent, to one of the 94 FIU’s.
This past year has seen significant growth in the Account Aggregator (AA) ecosystem in India, with 1.1 billion AA-enabled accounts and 2.05 million users voluntarily sharing their financial data with banks and financial institutions. The AA framework is a game-changer for financial inclusion because it gives businesses access to the information they need to source, underwrite and manage portfolios more quickly and with a better user experience,
Fintech Ecosystem: Amazing Growth Trajectory
India is amongst the fastest growing fintech markets in the world. The market size of Indian fintech industry is $50 billion in 202 and is estimated at $150 billion by 2025.
Over the last 4-5 years, fintech grew at a CAGR of 26 per cent per annum. It grabbed 14 per cent of total funding grabbed by global fintech companies. Resultantly, the number of fintech companies in India has crossed the mark of 7,500. Out of these, 23 have already bagged Unicorn status, which is quite remarkable given that the total number of unicorns in India run in triple digits.
India’s digital payments market is at an inflection point and is expected to more than triple from $3 trillion today to $10 trillion by 2026. As a result of this unprecedented growth, digital payments (non-cash) will constitute nearly 65 per cent of all payments by 2026.
In recent years, India has claimed the global fintech spotlight, captivating investors from every corner of the world. Propelled by a booming economy and a tech-savvy, youthful population, the country serves as fertile ground for fintech enterprises to flourish. Little surprise, then, that India has emerged as the world's third largest fintech market, trailing only the United States and China.
Up until now, fintechs have raised more than $30 billion from Venture capitalists. Initially, payment fintech dominated the investment chart, but now the gap between payment and other sub-sectors is subsidizing. Out of $30 billion, $9 billion has been invested in lending fintechs. In 2021, the funding witnessed a 300 per cent jump. In terms of total deal, Indian fintech sector stands at second position.
The number is only slated to rise in upcoming years. Estimates suggest that by 2030, Indian Fintech will have $1 trillion assets under management. India’s fintech adoption rate at 87 per cent is way above global average.
Fintech Ecosystem Growth: Bolstered by India Stack and Other Factors
Touted as the world's largest open API, India Stack has become the cornerstone of India's fast-paced fintech transformation. Since the deployment of India Stack, India has been organizing hackathons to develop applications for the APIs. This has created an environment of innovation and collaboration, where fintech companies are able to leverage India Stack's open infrastructure to develop new and exciting products for their customers.
As the fintech landscape continues to expand in India, with segments such as payments, insurtech, neo banks, digital lenders, and wealth-tech, India Stack's open infrastructure has become an essential tool for companies looking to create niche products for their target audiences.
In fact, the Indian government has long recognized the importance of financial inclusion as a means to drive economic growth and reduce poverty. Besides, the government has launched a number of initiatives aimed at bringing financial services to the underserved and unbanked population. These initiatives, including the Pradhan Mantri Jan Dhan Yojana (PMJDY) scheme, have been a boon for the fintech industry in India, as they have created a vast pool of potential customers who are looking for affordable and accessible financial services.
Additionally, the supportive demographics of India have also played a role in the growth of the fintech industry. Further, the availability of low-cost data and increased affordability as income grows have contributed significantly to the rise of internet and mobile usage in India. As a result, there has been a surge in internet penetration, exponentially narrowing the gap between telephone subscribers and internet users.
In fact, the internet user base has expanded from 0.52 billion to about 0.85 billion in just 4 years (2018-2021). By FY25, the number of active internet users is expected to reach 0.95-1 billion, indicating an enormous market for fintech in India.
Another reason behind the meteoric rise of fintech in India is the high penetration of internet and mobile usage, which is similar to that of China. India has also seen the unprecedented transformation in its financial landscape, thanks to a trinity of revolutionary concepts – Jan Dhan, Aadhaar, and Mobile, commonly known as the JAM trinity. This innovation has resulted in the country's growth from one of the world's most unbanked economies to one where most adults have bank accounts.
The JAM trinity has opened the door to fintech start-ups, allowing them to develop innovative and differentiated business models in the world's second-most populous country. This has positioned India as the next big market for the fintech industry, with immense potential for growth.
Ever expanding in scope
As per a Frost and Sullivan report, there are more than 1,860 fintech start-ups operating in the country, focusing on areas such as payments, lending, wealthtech, insurtech, and neo-banking. These start-ups have already secured more than a quarter of all start-up funding in India, and the fintech sector is set to attract even more investment in the near future.
Moreover, India's fintech market is projected to see impressive revenue growth in the coming years, with estimates suggesting that it could soar to US $13 billion by 2027, up from US $3.4 billion in 2021. This expected surge is primarily due to government policies supporting fintech innovation, increasing investments, and a high fintech adoption rate of 87 per cent, the highest compared to other countries.
It is an exciting time for the Indian fintech industry, and India Stack is leading the charge towards a more inclusive, digitized financial ecosystem.
Sources
1. The Four Pillars of India Stack: Aadhaar, UPI, eKYC, and DigiLocker Explained
2. India Stack Website
3. What Is an Account Aggregator & Why Is It Relevant?
4. Ministry of Finance
5. Account Aggregator Finvu Secures Funding To Make Users’ Financial Data Transfer Safe
6. “India Stack Impact of Population Scale Digital Infrastructure” Dr. Vivek Raghavan, (Volunteer ISpirit)
7. What is the India Stack and why is it no longer the dream it used to be?
8. Aadhar Brochure
9. DigiLocker Leads the Charge in India’s Digital Revolution
10. Account Aggregator- India’s next digital innovation
11. UPI Payments: 10 billion Transactions A Month Done, Next Stop 100 billion
12. How India Stack Transforms India into a Cashless Economy
13. Introduction About India Stack
14. The Magic of India Stack: How It is Creating a More Inclusive & Accountable India
15. The India Stack: opening the digital marketplace to the masses.
16. India stack and lending reforms enablers in the evolving fintech story: Siddharth Parekh
17. “You should do what India does”: FinTech ecosystems in India reshaping the geography of finance.
18. Rise and rise of fintech
19. The rise and rise of India’s fintech sector
20. India - A Global FinTech Superpower