Simplicity, Scale and Security — The key for democratizing access to financial services for a Billion Indians using Technology

Niti Aayog’s Fintech month witnessed an interesting session that was moderated by Rahul Chari, Co-Founder & CTO, PhonePe and the distinguished panel consisted of trailblazers like Dilip Asbe, MD & CEO, NPCI and Dr. Pramod Varma, CTO, EkStep Foundation. Here is an excerpt from the wide-ranging discussion on digital economy architecture, digital public goods infrastructure, the cruciality of an empowered ecosystem, and the continued need for a simplistic approach.

Decoding the Digital economy architecture

Sharing that the Indian Government’s collaborative approach (a partnership between regulators and private players) has led to the creation of a unique digital highway or backbone for a digital economy, Pramod decoded the three pillars of the digital economy:

1. Digital Identities (Who I Am) — Digital ID’s and Electronic Verifiable Registries — e.g.: Aadhar

2. Digital assets (What I have) — User owned, controlled, portable, tradable assets (digital and physical) including data and credentials — e.g.: DigiLocker

3. Digital Transactions (What I Do) — Interoperable, decentralized, open network of platforms — e.g.: UPI and Account Aggregator Model.

He further added that user empowerment will need to be driven through interoperability and necessary diversity and inclusion as no single app can solve a Billion population’s problems.

Ecosystem empowerment critical to scale

Agreeing with Pramod on the significance of an empowered and decentralized ecosystem, Dilip shared that India does not accommodate the one institution, one user or one owner thought process. By taking a collaborative approach, India has fueled the growth by building digital public goods like Aadhar and UPI, creating an overlay by empowering the ecosystem that is built up and allowing the creation of multiple use cases that have facilitated nearly 250 million people to participate in the digital payment ecosystem. Opining that he sees the digital payment ecosystem as the base or the denominator on which traditional financial services can build, he underlined that the more we do on the digital payments the better it is for the ecosystem to be able to expand on credit, insurance and investments — pertinent pillars that can drive the wellbeing, economy, and wealth creation within the country. Sharing that every NPCI employee and the UPI ecosystem dreams of a billion transactions a day [5X of the current 200 million transactions (approx.)]. Dilip further added that the challenges from the 200 million transactions to a billion transactions a day are going to be very different, and every stakeholder will need to take a differentiated view to a complex challenge.

A simplistic approach to tackling exponential complexity

To deal with exponential complexity, simplicity is the ideal approach else execution is bound to fail. There cannot be a monolithic solution approach, said Pramod. Highlighting UPI as a classic example of a simple approach to a complex problem that had a remarkable impact, he explained the core concept with which UPI was envisioned. The network facilitated unification and the protocol for UPI was all about moving money from any virtualized payment address, any currency, any device, and any authentication.

Do more for the digital payment ecosystem to Be More

Dilip highlighted that the digital payment industry is still at a nascent stage and has a long way to go. In addition to the number of payments, he shared three critical aspects that keep the ecosystem running — (1) The number of users; (2) The number of use cases supported (3) Building high-velocity behavior and patterns in each of these layers which will ultimately result in phenomenal growth. He mentioned that the regulator is already ahead of the curve with efforts like tokenization, taking a simplistic approach, enabling low transaction values of Rs. 200 and seamless offline transactions, all of which add up to a great customer experience. Additionally, decentralized technology, the power of the token, and the power of smart contracts will increase use cases, which in turn will get more business and contribute more to the economy.

Establishing trust through fraud resolution

For a country as vast and diverse as India, fraud detection and prevention is a complex problem. He added that despite steps being taken in this direction, a lot of effort is still required from all stakeholders. Emphasizing the need to set up mechanisms for each step of the process, Dilip shared:

1. Step 1 — Prevent:

a. Awareness — Awareness is the single most important solution for prevention. In addition to regulators and the Government, Fintechs must also have the ability to deliver compliance and awareness as that is the only way they can grow big and scale.

2. Step 2 — Detect

Detection is a critical step in the fraud prevention and resolution process. For efficient detection, significant investments in technology are required so that the negative list can be communicated to the larger ecosystem to avoid further fraud replication.

3. Step 3 — Respond

The Ministry of Home Affairs (MHA) has operationalized a national helpline number and reporting platform for preventing financial loss due to cyber fraud, to provide a safe and secure digital payments ecosystem. The facility empowers both the banks and the police, by leveraging new-age technologies for sharing online fraud-related information and acting in almost real-time.

4. Step 4 — Recover

The Reserve Bank of India (RBI) has been ahead of the curve and created a recovery guideline where if an individual understands that money is debited from his/her account and reports this to the bank within two days, the bank will trace and recover the money.

Watch the full video of the conversation here.