The impact of Digital Public Infrastructure (DPI) goes beyond inclusive finance—it can support health, education, and sustainability. In India, in just six years, it achieved a remarkable 80% financial inclusion rate—a feat that would have taken nearly five decades without a DPI approach. Other nations, including Brazil, Estonia, Peru, and Singapore, have similarly embraced DPI models, yielding tangible results that underscore the efficacy of this approach.
India’s financial inclusion strategy relies on the JAM trinity of Jan-Dhan, Aadhaar, and mobile and integrates digital ID for more efficient account opening and payment applications for access to financial services. E-KYC uses the Aadhaar ID system to verify the identity of end users quickly, allowing financial service providers (FSPs) to enrol customers easily and directly activate new services, such as mobile connections and bank accounts. E-KYC is paperless, private, and instantaneous, with reliable data shared in real-time. Micro-ATMs use Aadhaar authentication for branchless banking, reducing paperwork and enabling electronic record keeping. Similarly, the India Stack has digitized and simplified KYC procedures, lowering costs; banks that use e-KYC lowered their cost of compliance from $0.12 to $0.06. The decrease in costs made lower-income clients more attractive to service and generated profits to develop new products.
Amid the COVID-19 pandemic, DPI enabled emergency support to be directly delivered to the digital wallets of those in need as well as helped facilitate swift vaccine distribution. The India Stack exemplifies this approach, combining digital ID, interoperable payments, a digital credentials ledger, and account aggregation.
Powered by digital financial services (DFS), there has been progress globally on financial inclusion, but several challenges remain. About 1.4 billion adults remain financially excluded, over 50 per cent of which are in seven emerging markets and developing economies (EMDEs).
Examples of DPIs, all of which play a leading role in the advancement of financial inclusion in many countries, are (i) digital ID systems, such as India’s Aadhaar, Singapore’s Singpass, the Philippines’ PhilSys, and the United Arab Emirates’ UAE-Pass; (ii) digital payment systems, especially fast payment systems, such as Brazil’s Pix, India’s Unified Payments Interface (UPI), Türkiye’s FAST, the European Union’s TIPS, and Thailand’s PromptPay; and (iii) data-exchange platforms, in particular those incorporating trust and consent, such as India’s Digilocker and Account Aggregator, Estonia’s X-Road, Singapore’s MyInfo, Australia’s Customer Data Right, and the United Kingdom’s Open Banking.
DPIs can be combined to unlock even more innovation and extend further benefits, to the users and the market. For example, in India, the implementation of DPIs such as Aadhaar (a foundational digital ID system), along with the Jan Dhan bank accounts and mobile phones, is considered to have played a critical role in moving owner-ship of transaction accounts from approximately one-fourth of adults in 2008 to over 80 per cent now—a journey that it is estimated could have taken up to 47 years without DPIs.
Over the last decade, the Government of India successfully leveraged its robust DPI to support key development priorities, such as financial inclusion and women’s economic empowerment. In particular, the digital ID (Aadhaar)–)-enabled e-KYC process simplified the opening of accounts under the Pradhan Mantri Jan Dhan Yojana (PMJDY), or “National Mission for Financial Inclusion.” This initiative, implemented in 2014 to ensure affordable access to financial services, brought millions into the formal banking sector.
Moreover, the JAM pipeline, created through the consent-based linking of beneficiaries’ Jan Dhan bank accounts with their Aadhaar and mobile numbers, facilitated instant Direct Benefit Transfers (DBT) to those eligible for government welfare schemes. Since its launch, the number of PMJDY accounts opened tripled from 147.2 million in March 2015 to 462 million by June 2022; women own 56 per cent of these accounts, more than 260 million.
While DPIs’ role in this leapfrogging is undoubtable, other eco-system variables and policies that build on the availability of DPIs were critical. These included interventions to create a more enabling legal and regulatory framework, national policies to expand account ownership, and leveraging Aadhaar for identity verification.
Different types of payment systems could be operating as DPIs. Fast Payment Systems (FPS) in particular operate as DPIs, with easy access and inherent interoperability features. For example, Brazil’s Pix, India’s UPI, the European Union’s TIPS, Türkiye’s FAST, and Mexi- co’s SPEI allow individuals, businesses, and public authorities to collect and deliver payments around the clock and with immediate availability of funds to the beneficiaries. These features spur wide participation, competition, and innovation in the market, enable novel transaction-initia- tion approaches, remove frictions, and result in enhanced services and experiences delivered to end users at lower costs, thus fostering financial inclusion.
In India, the implementation of various DPIs is considered to have played a critical role in the increase in account ownership from just one-fourth of adults in 2008 to almost 80 per cent a decade later—a journey that it is estimated would have taken up to 47 years without DPIs.
India’s UPI is an instant, real-time fast payment network in India that can map payment accounts to a single payment identifier, which can be a virtual payment address (VPA) or as simple as one’s mobile number. UPI started with bank accounts, but now payment can be made from wallets and even credit cards. It supports various payment methods, such as QR code–based payments, UPI Lite, UPI123Pay, UPI credit, and so forth.
The UPI platform has gained significant popularity in India; more than 9.41 billion transactions valuing about Rs 14.89 trillion were transacted in May 2023 alone. For the fiscal year 2022–23, the total value of UPI transactions was nearly 50 per cent of India’s nominal Gross Domestic Product (GDP).
Data-exchange DPIs can enable providers to obtain more easily the information they need to provide financial products and services or also to fulfil regulatory requests, such as risk management processes. Examples of data exchange DPIs include India’s Data Empowerment and Protection Architecture (DEPA) and Account Aggregators.
India’s DEPA empowers individuals by giving them ownership over their data (rather than being controlled by the service providers who collect this data) and allowing them to share it across providers to enable access to tailored products and services. This means that new entrants do not need a high initial investment—in this case, in the form of pre-existing client relationships—to be able to compete for and offer innovative products. DPIs can level the playing field and, in doing so, significantly reduce incumbent advantages, pushing all providers to offer better services to retain customer loyalty.
India’s Account Aggregator (AA) Framework aims to strengthen India’s data infrastructure, enabling consumers and enterprises to share their data only with their consent through an electronic consent framework. Acting as consent managers for the consumers, AAs enable the sharing of digital financial data from the exist- ing financial institutions of the consumers where they already have an account to prospective financial institutions where they have applied for a new financial product. This ecosystem, regulated by the Reserve Bank of India (RBI), involves four key participants: the AAs, the financial information provider (FIP), the financial information user (FIU), and the citizens.
Currently, a total of 1.13 billion cumulative accounts are enabled for data sharing through Account Aggregators with customer consent. The cumulative number of consents raised through Account Aggregators reached 13.46 million in June 2023, registering a monthly growth rate of 28 per cent. The number of new consents successfully fulfilled in June was 2.9 million, which translates into 97,000 consents per day. As of June 30, 2023, the total number of entities that were live on AA was 248, with 75 FIPs, 231 FIUs, and 11 AAs with NBFC-AA licenses from the Reserve Bank of India (RBI).
One aspect that makes DPIs unique, and that can further reduce existing constraints, is their ability to complement each other or be integrated in end-to-end workflows. Systems using application programming interfaces (APIs) can be configured with appropriate channels and products to reach the poor when the APIs are underpinned by a digital ID system and facilitate interactions between governments, businesses, and citizens. One such service that is enabled by the interaction of open APIs and digital ID systems is the e-KYC or remote authentication services. For example, in India, the Aadhaar biometric identification system, which covers over one billion people and supports APIs, enables remote identification and authentication. FSPs can thus authenticate an individual’s identity remotely, even by using selfie-based mechanisms to substitute for in-person customer due diligence (CDD) verification requirements.
DPIs can enhance efficiency for private organizations through reductions in the complexity, cost, and time spent on business operations. For some nonbank financial companies (NBFCs) in India, the AA ecosystem enabled an 8 per cent higher conversion rate in SME lending, a 65 per cent savings in depreciation costs, and a 66 per cent reduction in costs related to fraud detection. According to industry estimates, banks’ costs of onboarding customers in India decreased from $23 to $0.1 with the use of DPI.
DPIs can help address the credit gap faced by MSMEs and enable access to loans by individuals. For instance, through open APIs, India’s Open Credit Enablement Network (OCEN) enables MSMEs participating in digital markets to secure credit by using information about their business history, rather than pledging physical assets as collateral. Fintech and e-commerce providers developed a methodology for determining the credit risk of a consumer by using multiple consumer data inputs related to creditworthiness, shared by consent of the consumer, and accordingly providing a small short-term loan to enable online purchases on credit for the first time.
DPIs can enable digitalizing government-to-person (G2P) payments in an efficient, inclusive, and adaptive way in the following key areas: (i) beneficiary account opening, (ii) account registration with the government program, (iii) generating payment instruction (for the executing financial institution or the national treasury), (iv) transfer of funds to beneficiary accounts, (v) reconciliation, and (vi) payment cash-out or digital use.
In the last decade, India has built one of the world’s largest digital G2P architectures leveraging DPI. This approach has supported transfers amounting to about $361 billion directly to beneficiaries from 53 central government ministries through 312 key schemes. As of March 2022, this resulted in a total savings of $33 billion, equivalent to nearly 1.14 per cent of GDP.
DPIs can support remittances in practice and the UPI-PayNow interlinking, a fast payment system interlinking between India and Singapore to facilitate cross-border payments and remittances operationalized in February 2023, enables users of the two FPS in either country to make convenient, safe, instant, and cost-effective cross-border transfers of funds using their mobile apps. Funds held in bank accounts or e-wallets can be transferred to/from India using just the UPI-ID, mobile number, or virtual payment address (VPA). When making a transaction, the system dynamically calculates and displays the amount in both currencies for the convenience of the user.
This interlinking aligns with the G20’s financial inclusion priorities of driving faster, cheaper, and more transparent cross-border payments and will be a significant milestone in the development of infrastructure for cross-border payments between India and Singapore.
Data exchange and digital payments, when used together, can also provide alternate sources of collateral for MSMEs. They can facilitate merchant receivables financing by using the digital record of an MSME retailer’s payment receipts as collateral. For example, the Trade Receivable Discounting System (TReDS) in India, allow FSPs other than the buyer’s bank to discount the buyer’s receivables.
Excerpted from ‘G20 Policy Recommendations For Advancing Financial Inclusion And Productivity Gains Through Digital Public Infrastructure – Global Partnership for Financial Inclusion 2023’. (This G20 Global Partnership for Financial Inclusion (GPFI) document was prepared by the World Bank as an implementing partner of GPFI with the guidance of and inputs from the G20 India Presidency).
– global bihari bureau
