How Do You Take 1.3 Billion People to the Bank?
(Bloomberg Opinion) -- In the futurist law now named after him, the late Stanford University computer scientist Roy Amara once declared, “We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.” India’s public digital infrastructure — in many ways, an immense online bureaucracy — is an outlier to this principle. The effort was written-off in the short run, but, less than a decade after it was introduced, it has mobilized technology at the grass-roots, tapping into the country’s huge domestic potential. India is now ready to share its experience with the developing world.
The system — built on a unique 12-digit identification code for each Indian resident — has significantly improved financial inclusion, access to public documents and services, tax compliance, retail payments and the management of government subsidies. The key has been the Aadhaar card – the national identity document. Aadhaar was launched in 2009 by the government of then Prime Minister Manmohan Singh. To run the program, he roped in Nandan Nilekani, a veteran of Infosys, the country’s homegrown technology giant. It was an ambitious attempt to reach and electronically organize the more than 1.3-billion people living in India’s sprawling, varied and sometimes inaccessible territory.
While questions were raised about privacy issues, Aadhaar was cleared by the Indian Supreme Court for opt-in use in September 2018; a larger bench of judges affirmed the decision in January 2021. Today, most of India has chosen to join the biometric data system: there are 1.26 billion people officially registered in Aadhaar.
While it began with the Manmohan Singh government, Aadhaar became the backbone of the India’s public digital infrastructure in 2014 when Prime Minister Narendra Modi combined it with his government’s Jan Dhan initiative, a financial inclusion program for India’s huge number of unbanked households. These new accounts were linked to both mobile numbers and Aadhaar, creating the Jan Dhan-Aadhaar-Mobile, or JAM. Today more than 80% of all Indians have a bank account, up from half that level when the program started.
The digital network is now the lynchpin for most of India’s social security and cash transfer programs — which had been notorious for corruption and unreliability. Today, the government uses JAM’s direct benefit transfers for 317 programs. It made 2.6 billion transactions in the current financial year, getting more than $46 billion to beneficiaries. The cumulative value of the transfers since the first programs started in 2013 stands at more than $195 billion.
The four big successes of India’s public digital infrastructure have been Unified Payments Interface (UPI), Bharat QR, Bharat Bill Pay System (BBPS) and the RuPay card — which work with all or parts of the digital network’s threefold components of banking, secure identity and mobility.
UPI allows peer-to-peer and consumer-to-merchant transactions through mobile apps and e-commerce platforms, with JAM providing identification for money transfers. It registers 2-billion transactions a month and, in just about four years, is now in use from the largest departmental stores to roadside trinket shops.
Bharat QR allows consumers to scan the graphic codes to transfer money without sharing phone numbers. This system performs 250 million transactions a month.
Going live in 2018, BBPS allows Indian consumers to pay bills for practically everything online and via UPI apps — utilities, school fees, insurance premiums and loans.
Launched in 2012, RuPay cards were meant to rival Visa and Mastercard. Already, more than 600-million cards have been issued, chiefly on Jan Dhan accounts. RuPay has a 30% market share in point of sale transactions and 25% in online transactions. India is working with nine countries to ensure RuPay cards are integrated with local payment systems — including, Australia, Bahrain, Bhutan, Maldives, Myanmar, Saudi Arabia, Singapore and South Korea.
Indeed, other countries with the same logistical challenges and demographic needs as India may be tempted to adopt much of the digital network. In 2018, Bill Gates, technology stalwart, backed Aadhaar and praised Modi for fully embracing the scheme. In its March 2019 report “Digital India,” McKinsey Global Institute observed that “the public sector has been one strong catalyst for India’s rapid digitization. The government’s efforts to ramp up Aadhaar has played a major role.” Exporting India’s public digital infrastructure would increase the country’s influence on a massive scale even as it improves quality of life of millions globally.
In fact, the digital infrastructure has only grown and adapted with the Covid-19 crisis. Two apps, the JAM-linked vaccination monitor CoWin and the contact tracer Aarogya Setu, were integral to India’s battle against the coronavirus. The Electronic Vaccine Intelligence Network is a smartphone-based supply chain platform developed connecting 27,000 vaccine storage centers supported by 50,000 cold chain handlers. It deals primarily with maternal care and infant inoculation; each year it has to manage the needs of 27 million newborns.
Bridging the digital divide is the best way to overcome socio-economic differences. India can lead from the front.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Aashish Chandorkar is an author and public-policy expert based in Pune, India. He also co-hosts the current-affairs-themed podcast Bharatvaarta.
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