Venture partner at Menlo Ventures Karl Mehta and serial entrepreneur Carol Realini are currently crowdsourcing success stories for their new book “Financial Inclusion at the Bottom of the Pyramid.” Originally profiled in a November 21 article for PYMNTS.com, the book aims to draw attention to real-world solutions that stand to deliver exponential growth in financial access.
This entry is Part 2 of a three-part series that will profile Realini’s trip to India to meet with nominees.
By Carol Realini (@carolrealini) and Shrikant Karwa
Meeting Nandan Nilekani to know about his latest projects and to understand his perspective on current affairs is always insightful. So here I am, in the office of the Chairman of the Unique Identification Authority of India (UIDAI) in central New Delhi.
In July 2009, at the invitation of Indian Prime Minister Manmohan Singh, Nandan left his comfortable position as managing director of the immensely successful IT company Infosys, which he had co-founded, to helm the UIDAI project.
The project is currently the world’s largest, biometric-based identity system that provides a token-free, online authentication service. “Aadhaar,” as the project is branded, means “foundation” in several Indian languages. True to its name, it provides support to various service delivery platforms in the country to minimize the friction in the large volume of transactions, encountered routinely in India.
The importance and relevance of a robust ID system in the pursuit of successful financial inclusion stories dawned on me only when I met Nandan and started envisaging the challenges that one would be faced with in the absence of a ubiquitous ID system. I suppose that in the western and developed world, where ubiquitous ID systems are always present, one tends to think of it as a given. The challenge there is to build systems and processes based on the existing ID system whereas in developing countries, this itself is a challenge and thus an essential ingredient from a long-term, sustainable, scalable, low-cost solution perspective.
Countries like India lack an institutional birth delivery infrastructure, creating a weak birth-record system – the first step in an ID system. This has a cascading effect and creates challenges for a robust, ubiquitous ID system for service delivery. Not having an ID or an ID system can lead to exclusion from people-interaction initiatives be it buying a SIM card for a mobile phone, verification at a security check point, opening a bank account compliant with Know Your Customer requirements or even voting.
This is the area where Nandan’s Aadhaar project is making the lives of millions of Indians easier. The project assigns a 12-digit number to an individual based on his/her biometrics, making the number unique. It is impressive to know that UIDAI has issued more than 500 Million unique Aadhaar numbers to the residents of India in little more than three years.
Currently, it generates about 1 million Aadhaar numbers daily. The key to achieving such massive success in a typical government system has been to focus on speed, to create a prototype of every model as early as possible and roll it out as soon as possible, learn from field lessons and improvise. Other pillars for success, such as using open-source technologies where possible, interoperability and strict no vendor lock-ins, using commodity hardware, planning for scale from day one and not compromising on the quality of data collected, have resulted in the project costing less than $2 per Aadhaar issued.
This is how Aadhaar takes India from largely being a no-identity infrastructure country to one that has an online identity compatible ID infrastructure. In the process, it leapfrogs over an entire generation of token-based identity systems prevalent in much of the developed world. Nandan explains that Aadhaar has been designed as an identity platform on which various service providers can become UIDAI partners to leverage Aadhaar for online identity verification. In addition, it empowers a resident to share his ID information, which is with UIDAI, with a third-party service provider by giving an active consent for the same.
Aadhaar’s role solely focuses on and is limited to the sphere of providing identity; it has no knowledge of the kind of interaction the resident has with service providers. This federated model works in the interest of protecting the resident’s privacy with no collation of resident centric information at one location.
The banking regulator, Reserve Bank of India, has accepted Aadhaar to meet stringent Know Your Customer requirements for opening a bank account. In addition, inter-bank payment routing organizations such as the National Payments Corporation of India (NPCI), VISA, etc. have built a mapper linking Aadhaar to the resident Bank A/c. Thus Aadhaar becomes a convenient financial address for residents, working as a KYC and a conduit for convenient remittances, providing an end-to-end solution for financial inclusion.
At the heart of the success of the Aadhaar project is the biometric de-duplication process deployed by UIDAI to establish uniqueness of each resident. As a part of this process, every new, incoming identity biometric is compared with all the existing biometrics, Aadhaar numbers for which have already been issued. Only when the new applicant’s biometrics are found to be truly unique does a new Aadhaar gets generated. This process requires the technology system to perform trillions of comparisons everyday to produce a million new identities daily.
Nandan demonstrated how the Aadhaar number, once generated, is used to verify identity online in a ubiquitous manner. Nandan entered his Aadhaar number and fingerprint in the live attendance system installed at the UIDAI office in Delhi. The system responded with a successful match after comparing the fingerprint and Aadhaar number with a database in a remote data centre in real time. Nandan demonstrated it again, this time using his iris instead of the fingerprint, showing how the identity project aims to be inclusive for residents facing problems with fingerprint authentication.
Nandan put it succinctly when he asked me to envisage Aadhaar as a system that tells “who you are” just like a GPS system tells “where you are.” The U.S. government had originally built the GPS system to guide bombs and missiles, but when it opened the technology for other uses, it created an entirely new domain – that of location-based services, such as TomTom, etc.
Similarly, Aadhaar will initially fulfill traditional applications requiring identity to meet KYC norms, attendance, etc. with the promise it will find application to novel, never imagined applications and creation of entirely new industries and services.
Stay tuned to Part 3 of our series for more updates from Realini and her trip on PYMNTS.com. To learn more about hte benefits of biometrics, read our latest Report Store report here.
For more facts about the challenge facing the Indian financial services industry read on.
India’s Financial Inclusion Challenge
High Cost of Know Your Customer
· No uniform birth records
· No easy way to verify an address for the majority of people
· Low quality of other identification systems (drivers licenses, ID cards)
Massive last mile delivery issue for banking
· Banks are only present in 5 percent of habitations
· Only 40% of households have bank accounts
· 700M people live 8 hours travel time from a bank branch.
Building blocks are in place for Financial Inclusion
• No frills accounts (low cost basic banking services)
• Business Correspondents (Retail locations can become agent’s to banks)
• Communication & Cell phones (“1.15 Billion mobile connections” – GSMA)
• Payment Association including interoperability and faster payments (NPCI is their NACHA, IMPS is their interoperable faster payments capability)
• Mobile Banking – popular with the banked, and M-Pesa like models becoming available for the unbanked.
UID is the Glue
• Bring KYC costs to 1 Rupee (1.6 cents)
• 524 Million IDs issued
• 1 Million new ones a day
• Plans to ramp to 2 Million a day