The Four Pillars of India Stack: Aadhaar, UPI, eKYC, and DigiLocker Explained

The Indian fintech ecosystem has seen a significant growth spurt over the past decade, driven by factors such as increased smartphone penetration, government initiatives, and rising digital literacy.

The India Stack, a collection of digital infrastructure and platforms, has been a key enabler of this growth. The India Stack is built on four pillars - Aadhaar, UPI, eKYC, and DigiLocker.

In this article, we will delve deeper into each of these pillars to understand their importance and impact on the Indian fintech ecosystem.

Pillar 1 - Aadhaar

Aadhaar is a unique identification number issued to every Indian resident. It is a biometric-based identification system that includes a person's demographic and biometric information.

Aadhaar has become an important component of the Indian fintech ecosystem, enabling digital identity verification, e-KYC, and other authentication services.

According to the Unique Identification Authority of India (UIDAI), over 1.2 billion Aadhaar cards have been issued as of March 2021.

Table 1 - Growth of Aadhaar Enrollments

Source: Unique Identification Authority of India (UIDAI)

Features of Aadhaar

• Unique identification number issued to every Indian resident
• Biometric-based identification system that includes a person's demographic and biometric information
• Enables digital identity verification, e-KYC, and other authentication services

Use of Aadhaar in Fintech

Aadhaar has played a critical role in promoting financial inclusion in India, enabling easier access to financial services for people in remote and underserved areas. It has been used for e-KYC verification, allowing customers to open bank accounts, apply for loans, and avail other financial services online. Aadhaar has also been used for digital authentication, enabling secure and efficient transactions online.

Challenges and Controversies surrounding Aadhaar

Despite the benefits of Aadhaar, the system has faced several challenges and controversies. The use of Aadhaar for e-KYC verification has faced legal challenges, with concerns raised about data privacy and protection.

The Supreme Court of India has also restricted the use of Aadhaar for certain services, citing concerns about privacy and data protection.

Pillar 2 - UPI

UPI is a payment system that allows users to transfer money instantly from one bank account to another. It has become an integral part of the Indian fintech ecosystem, and has revolutionized the way people transact. UPI enables peer-to-peer payments, bill payments, and merchant payments, among others.

According to the National Payments Corporation of India (NPCI), UPI processed over 2.7 billion transactions worth over Rs. 5 trillion in February 2021.

Table 2 - Growth of UPI Transactions

Source: National Payments Corporation of India (NPCI)

Features of UPI

• Payment system that enables instant money transfer from one bank account to another
• Enables peer-to-peer payments, bill payments, and merchant payments, among others
• Can be used through mobile apps or USSD (Unstructured Supplementary Service Data)

Use of UPI in Fintech

UPI has had a transformative impact on the Indian fintech ecosystem, enabling easy and secure transactions for users. It has made digital payments accessible to a large number of people, including those who were previously excluded from the formal financial system. UPI has also facilitated the growth of digital lending platforms, allowing customers to access loans quickly and easily.

Future of UPI

UPI has witnessed tremendous growth since its launch in 2016, and is expected to continue its upward trajectory in the future.

The NPCI has announced plans to expand UPI to other countries, enabling cross-border transactions.

UPI is also expected to play a critical role in the government's digital payments agenda, with initiatives such as the Digital India programme and the National Common Mobility Card (NCMC) project.

Pillar 3 - eKYC

eKYC is an electronic Know Your Customer (KYC) process that enables digital identity verification of individuals.

eKYC allows users to open a bank account, invest in mutual funds, and avail other financial services online, without the need for physical documents.

It has made it easier for people to access financial services, and has reduced the cost and time involved in onboarding customers.

Features of eKYC

• Electronic Know Your Customer process that enables digital identity verification
• Eliminates the need for physical documents
• Reduces cost and time involved in onboarding customers

eKYC in Fintech

eKYC has been widely used in the Indian fintech ecosystem, enabling easy and secure customer onboarding. It has facilitated the growth of digital lending platforms, enabling them to onboard customers quickly and easily.

eKYC has also been used for mobile wallet verification, enabling customers to use digital wallets for transactions.

Impact of eKYC on Fintech

eKYC has had a transformative impact on the Indian fintech ecosystem, enabling faster, cheaper, and more efficient onboarding of customers. It has reduced the time and cost involved in physical verification, enabling fintech companies to scale quickly. eKYC has also improved the customer experience, enabling them to access financial services from the comfort of their homes.

Pillar 4 - DigiLocker

DigiLocker is a digital platform that enables Indian citizens to store and access their documents and certificates online. It is a cloud-based platform that enables secure and easy access to documents such as driving licenses, vehicle registration certificates, and academic certificates. DigiLocker has been integrated with several government services, enabling citizens to access services such as e-KYC and Aadhaar-based authentication.

Features of DigiLocker

• Digital platform that enables citizens to store and access their documents and certificates online
• Cloud-based platform that enables secure and easy access to documents
• Integrated with several government services

Use of DigiLocker in Fintech

DigiLocker has been used in the Indian fintech ecosystem, enabling easy and secure access to customer documents. It has been used for e-KYC verification, enabling customers to onboard quickly and easily. DigiLocker has also been used for digital authentication, enabling secure and efficient transactions online.

Potential of DigiLocker in Fintech

DigiLocker has a huge potential in the Indian fintech ecosystem, enabling faster and cheaper onboarding of customers. It has the potential to reduce the time and cost involved in physical document verification, enabling fintech companies to scale quickly.

DigiLocker can also improve the customer experience, enabling them to access financial services seamlessly.

Conclusion

The Four Pillars of India Stack - Aadhaar, UPI, eKYC, and DigiLocker - have had a transformative impact on the Indian fintech ecosystem, enabling faster, cheaper, and more efficient delivery of financial services.

Aadhaar has enabled digital identity verification and authentication, UPI has enabled instant and secure payments, eKYC has enabled faster and cheaper onboarding of customers, and DigiLocker has enabled easy and secure access to customer documents.

The Four Pillars have the potential to drive the growth of the Indian fintech ecosystem in the future, enabling financial inclusion and economic growth.