Photo: Scott Loftesness
A few weeks ago I joined my client Raj Jain, CEO of RS Software, for my third visit to India. RS Software is headquartered in Kolkata which was our first stop for the annual general meeting of shareholders. After that, we visited Mumbai and Bangalore – along the way we met with many of the key individuals helping drive the now rapid change that’s unfolding for payments in India.
My last visit was in January of 2015 –– just the week before President Obama made his second visit to India and early on during the administration of Prime Minister Modi. The sense of change was in the air – a definite uptick in energy, excitement, and renewed optimism about India’s future.
On my first visit to India six years ago, I spent much of my flight reading Nandan Nilekani’s then new book “Imagining India: The Idea of a Renewed Nation.” For me, this book was a great introduction and, since that time, it’s become clear that many of Nilekani’s ideas in that book are now seeing the light of day.
The first example I remember from the book was his push for what he called “Single resident I.D.” The goal of this idea was to provide each resident of India with a unique identification number that could ultimately be used to help solve trust and identification issues in a common way and provide a foundation for “know your customer” responsibility.
Discussion around this idea led to the formation of the Unique Identification Authority of India which was the vehicle that addressed the issues of technology, enrollment, rules for usage, etc. The unique numbers became called Aadhaar numbers –– since the first one was issued in 2010, over 1 billion Aadhaar numbers have now been issued to Indians. Each of these numbers is coupled with biometric authentication details captured at the time of enrollment. As with any such national identity scheme, the program was controversial but ultimately survived and Aadhaar now provides the foundation layer for what has come to be called the “India Stack” – and helped set up the opportunity for the next idea to be implemented. Starting in 2010 with no legacy, the team had an opportunity to think digital/cloud from day zero, and Aadhaar was conceived and implemented as an open, online ID from the beginning.
Another one of Nilekani’s ideas, the electronic payment of government benefits to citizens, began implementation last year. This new approach, known as Direct Benefit Transfer, eliminated the middlemen who were dipping into the funds intended for citizens. In parallel, Jan Dhan Yojana, a program launched by Modi early in his tenure, enabled all households with a bank account and accompanying RuPay debit cards to access their funds. Having the bank account is the key to enabling government payments to flow directly to citizens. The results have been stunning – with over 230 million new bank accounts opened in a little over a year.
Shortly after I was in India last year, momentum started building around simplifying domestic payments in the country. About five years before, India had invested in the development of IMPS – Immediate Payment Service – a real-time interbank electronic funds transfer system. With the growth in mobile and smartphones, usage has grown dramatically and now exceeds debit cards in usage.
IMPS was developed and managed by the National Payments Corporation of India (NPCI), a unique umbrella organization for all retail payment systems founded by a number of the banks in India with the support of the Reserve Bank of India. In February 2015, NPCI announced a new initiative – Unified Payment Interface – to address current market needs. In particular, a key goal of UPI was to provide mobile users with a way to send and receive money using a single identifier – either the Aadhaar number, mobile number, or bank assigned virtual address. UPI would decouple the service from any requirement on users to provide bank details for sending/receiving money.
NPCI went through a formal global tender process resulting in the selection of RS Software to build UPI. This was an important step for RS Software as it represented the first payments project undertaken by the company in India. Although headquartered in Kolkata, the company has for twenty-five years served as an outsourced development partner to global leaders in the payments industry in the U.S. and Europe. RS Software delivered UPI successfully and has also assisted some India banks in their implementation of UPI. UPI, as it removes friction from consumer payments, is expected to grow quickly following its recent launch by NPCI and many of the major Indian banks. The company also won another opportunity with NPCI to build the Bharat Bill Payment System for India (BBPS) which will be launching next month. Together, UPI and BBPS form a foundation layer for India’s digital payments infrastructure.
When I look back on this brief history, I’m struck by several things, starting with the foundation layer that was laid with Aadhaar and, ultimately, smartphone based biometric authentication. The national effort required to first complete the work of designing, building, and then enrolling the population has been substantial. I cannot envision anything similar happening in most of the developed countries that I know.
Second is the importance of industry collaboration to make efficient progress on agreeing on standards, deciding what to build, and everything that goes along with delivering that in a market of India’s size. The Reserve Bank of India, a particularly strong regulator in my experience, very much played important roles in this evolution – working with both NPCI and the banks.
Finally, the overlay of mobile and how mobile technology is changing everything. Mobile enabled payments are different from the card payments world I grew up in. Sure, we have Apple Pay, Android Pay and others which “mobile-enable” more efficient and secure mobile payments. But if you’re open to a new approach that doesn’t have to support a legacy world of card payments, new things are possible – indeed very likely. The combination of IMPS and UPI means that all of those newly opened bank accounts are going to have easy access to mobile real-time payments. Another example is the likely shedding of the traditional card-based requirement for merchants to have point-of-sale acceptance devices and, indeed, acquirers. The new mobile payments approaches we’re seeing emerging rapidly in India require neither.
Equipped with the Aadhaar identity, new banks accounts and the rapidly increasing presence of smartphones, India is on the cusp of rapid and accelerating change. In the world of payments, I find this story out of India pretty incredible!
Note: In a discussion like this about the evolution of payments in India, I must recognize a few key individuals from the private sector in India who have invested their time to help make this evolution possible. In particular, Dr. Pramod Varma, the former co-founder/CTO of Yantra, who has been a leader in defining the entire India Stack platform and Sanjay Jain, a former Google Product Manager. Alongside them are about 15 other technology professionals – including my good friend Sanjay Swamy – who gave their time to help architect and convince the government and regulators to accept and deploy this important new architecture for India.