The Government of India has embarked on a remarkable path to connect all its citizens onto a digital platform through which they can, in real-time, confirm their identity, financially transact with anyone else, and store relevant documentation in natively digital format and consent to it being shared digitally with others (for instance, to support credit applications). It presents an opportunity to close the financial inclusion divide in a country that until recently held the largest number of unbanked people in the world. This is linked to a broader e-Government agenda, which has the potential for bringing an unprecedented level of efficiency and transparency into the delivery of a whole range of public and social welfare services.
What makes the Indian experience so remarkable is that it is such a fundamental departure from what had become the canonical mobile money model in developing countries: that of a powerful domestic player building the ecosystem from scratch, controlling it end-to-end, and harnessing (and fully capturing the benefits of) the consequent network effects.
The Indian authorities have been clear from the beginning that they wanted to prevent the development of a dominated market, so they have based their approach on two key concepts: promotion of interoperability at all levels of the value chain, and provision of certain technical standards and public good service elements by public entities. The ultimate intent is to create a ubiquitous, low-cost network, and that requires focusing on leveraging market-level (rather than provider-specific) scale and network effects.
It´s hard to dispute the Indian motivations, but there are some practical questions that arise:
In such an interoperable model, where every player can potentially benefit from the actions of other players, will there be sufficient incentives for the deployment of an effective cash in/cash out network – which remains the toughest nut to crack in any digital money network?
As entities linked to government take on the role of delivering more and more component elements of the digital financial services value chain (e.g. UIDAI, NPCI, CCA, NeGD), what is the right governance model under which they should operate, to ensure that they remain focused on the public interest and not just in promoting their own organizational agendas?
As the central bank paves the way for much needed new institutional formats and license categories (e.g. prepaid instrument providers, white-label ATM providers, payment banks, small finance banks, etc.), the opportunities for regulatory arbitrage will increase and market access rules may come to seem increasingly arbitrary. As the competitive environment becomes complex, will the authorities be able to keep on top of market practices and ensure that the regulatory framework remains pro-competitive?
As more of people´s data is digitized, there will inevitably be strong commercial pressures for people to share more and more data in order to be able to access advanced digital services. Beyond the usual privacy protection concerns, how can we place limits on how much data customers have to give up as the price of digital inclusion?
A number of government initiatives are now starting to show results, just when political support is highest, but providers are often lagging behind for a lack of a clear business case. Is the market near an inflection point, and if not, how will we know when it is approaching it? What will it take for market players to take fuller advantage of the new digital finance public goods? What more can government do to push them?
We think that all digital finance professionals would do well to learn about the Indian experience, and use that to challenge their own thinking about digital financial inclusion models. With this purpose in mind, the Digital Frontiers Institute, of which I am an Executive Director with colleagues David Porteous and Gavin Krugel, has collaborated with MicroSave to create a four-week online course on the Indian journey, which we call Digital Money Grid India, and which we will offer in its first edition starting on March 27th.
The course is intended for professionals in digital money or digital financial services wanting to develop a fuller understanding of the emerging landscape for digital payments and financial inclusion in India. The intended audience includes professionals in India who expect to apply the understanding gained through the course directly in their market, as well as those outside India who want to understand and learn from the Indian model and experience.