Over the last fifteen years, India has evolved from a primarily cash-based society to the country with the highest volume of digital payments in the world. How this was accomplished is a remarkable story of innovation and imagination. It was well-told by one of the primary architects of India’s digital public infrastructure, Pramod Varma, who was onstage for a CHM Live discussion with M.R. Rangaswami, the founder of Indiaspora, CEF, and Sand Hill Group.
Before 2009, less than 15% of people in India had bank accounts. They did not have identification cards or civil registries. The country was giving away $50 billion dollars a year in cash subsidies that were sometimes stolen, diverted, or directed through middlemen. With a majority of the population under the age of 35, there was a need, said Varma, to make financial and account access available to aspiring young people, including women.
In 2009, the prime minister appointed Nandan Nilekani, the cofounder of Infosys, to a new cabinet role and tasked him with coming up with an identification system for 600 million people in four years. Varma was inspired by the challenge. He quit his job and volunteered to help.
Pramod Varma explains the early thinking about the ID system.
The scale of the challenge was daunting, given that no one had ever reached 600 million people on any platform. The core team of only five people realized that this scale changed the game, and they would have to think differently.
In just a couple of months the team had published the design principles for Aadhaar and how they would create it. Built on open source and minimalist principles, the system was launched just a year later, in September 2010. It took 260 days to get to the first million people. Then, a million and a half people joined every day, and they reached 600 million in less than four years.
Today, there are 1.4 billion people on Aadhaar, and it’s used online about 70 million times a day. It can also be used offline with a printout of a person’s cryptographically protected QR code. Using biometric identification means the system can be very simple and inclusive. It requires only four attributes: name, DOB, gender (including transgender), address. These attributes can be whatever the person wants. For example, names in India are very variable, and the system has names with just two characters, like “Om,” as well as names with seven or eight words.
Once people were in the system, the next question was, what would they use it for? Although the team didn’t have a mandate to do anything with the banking sector, they decided to focus on cash subsidies.
Pramod Varma describes expanding access to banking.
With a new digital instrument, the team was able to lower the cost of opening a new bank account from $10 to 10 cents. India now has 900 million accounts, achieving gender parity with 65% of them controlled by women.
In India, 700,000 villages have no bank branches because it's not cost effective in places where the transactions involve such low sums of money. Varma’s team created an open ecosystem and a micro-ATM that uses fingerprint authentication. Entrepreneurs created new devices and services to operate on top of the infrastructure. These systems bridged the access gap, and by 2013–14, banking was everywhere.
The Digital India initiative launched by Prime Minister Modi introduced electronic signatures and credentialing, so that everything is digitally verifiable. Varma’s team worked on a Unified Payments Interface (UPI) to meet the need for a high-trust, low-cost method for payments in a country where few had access to credit cards.
The UPI protocol was for an interoperable, open-loop system to prevent monopolies that was inspired by the design of the core internet architecture. It launched in 2016, and in 2023 saw 13.5 billion transactions involving 2 trillion dollars.
The commitment to open systems keeps costs low, as products and services from the marketplace can be added on, spreading costs across many organizations in both the public and private sectors. As Varma notes, you don’t have to build a full stack if you can lay digital highways and let entrepreneurs build around them. Today, the cost for each person in the system is about $2. In addition, these kinds of systems are flexible and more resilient to unexpected shocks, such as the COVID pandemic. During that time, money was transferred seamlessly and donations from the Indian diaspora reached those in need.
In 2018, Varma noted, the team began to ask what else they should worry about. They turned their attention to tackling the economic fabric of the country, which is characterized by fragmented microeconomies in commerce, agriculture, job markets, transportation, and other sectors.
Pramod Varma explains the Beckn Protocol.
The Beckn protocol enabled the creation of global, open source, peer-to-peer decentralized networks for economic transactions. Still in the early stages, it provides the fabric for entrepreneurs to offer goods and services, stimulating economic activity and allowing emerging economies to leapfrog older ones with entrenched systems.
Perhaps the most inspiring element of this ongoing work, is how Varma described a seminal talk by Nandan about the implications of digitizing India so quickly. Indians have become data rich before they are economically rich. It’s imperative, Varma says, that we consider personal data not as something to extract from people, but rather as something that they own and can use as currency to build their lives.
The challenge is to imagine not only the technology but also the legislative framework to enable and support such a human-centered future.
Watch the Full Conversation
India's Digital Revolution | CHM Live, May 30, 2024
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