Road to India@100: Transforming India's payments ecosystem

In the last 75 years, India has benefitted from all the technological progress we have made. Technology has been instrumental in helping drive disruptive business models across payments, lending, insurance and wealth management. India has also transformed from a cash-driven society, that, even as late as 2015, trailed the US and China in terms of digital payment transactions, to one which has become an exemplar for the rest of the world today. The fintech story in India is a brilliant example of a strong public-private partnership. It is a demonstration of what entrepreneurial innovation built on top of an intentional technology stack developed and positioned by the Government of India as a public good can do.

For a nation of entrepreneurial innovators, I believe this revolution is just the beginning. Given the momentum we have, and the many things we are yet to accomplish, here are six big themes that I believe will play out as part of India’s digital finance future when India turns 100 i.e. 25 years from now.

Digital payments: Having a completely digital payments system will be as crucial to society as the introduction of paper money. We foresee a future where digital payments become the standard, not the exception, for the entire country. Such a digital audit trail will also enable the government to broaden the tax net, leading to a decrease in compliance costs, while making the taxation system more efficient. Private access to their financial history will also empower citizens, reducing their dependence on middlemen. Aggregated data that can be sliced and diced to support fine-grained geographic analysis will also support policymakers to frame targeted policies that can optimise outcomes. The emergence of this frictionless financial system, made possible through digitised payments, will unleash innovation and opportunity for many.

Hyper-personal insurance products: Easy and affordable access to insurance is the next big disruption that will happen in the financial services space over the next few years. Advances in Machine Learning technology will enable insurers to combine different data assets across GPS data, smartphone accelerometer and gyroscope data with customers’ personal and digital data assets to hyper-personalise insurance products and its pricing. This will transform insurance sales from the traditional push-based model to a pull-based model where customers will be able to choose the right products for themselves. With these advances, friction in purchasing life, health and other insurance products will go away. The growth of insurance, powered by the ubiquity of digital payments and universal credit histories, will reduce costs and improve service levels while widening the safety net for all. The traceability provided by digital payments will also mean that fly-by-night operators will find it difficult to take advantage of information asymmetries, leading to greater trust in the country’s formal financial ecosystem.

Getting easy access to credit: In a world where digital payments are quickly becoming universal, access to credit—a key growth multiplier—is still lagging. Owing to UPI, all citizens will be able to build universal, trustworthy digital credit histories. These digital histories, along with data from bank statements to GSTN records, will be accessible and shareable to any credit provider via the Account Aggregator framework. This will make the credit underwriting process stronger for the credit provider and frictionless for the borrower. This will play a transformative role in enabling India to become a middle-income nation, creating wealth and opportunity for the country not just within, but also outside India.

Democratised access to digital finance: Within the last couple of years, digital finance has moved beyond discussions and has become a reality with use cases evolving often. Digital finance holds an enormous opportunity for democratising access to financial services, leading to greater financial inclusion. Innovations like UPI Lite and UPI123 will accelerate the democratisation of finance.

Bringing governments closer to citizens: India’s digital foundation will make good governance a reality, while also bringing governments closer to its citizens. The digitisation of finance in India will help the government to better support its citizens and enable targeted delivery of benefits to those who need it the most. The government has already begun to experiment with direct benefits transfer. But, imagine a day when all support payments are made automatically, in real-time with proper adjustments based on digital data that is accurately communicated. We believe this will eliminate a huge amount of waste and friction while opening up new possibilities, such as instant subsidies and universal basic income.

Open data platforms: Countries and companies are realising the value of building open APIs as a public good that helps spark innovation and ecosystem development. The example of India Stack and open-data systems like PhonePe Pulse have shown that the country progresses rapidly when the entire ecosystem collaborates to push innovation forward. As technology and innovators race ahead, they will be enabling policies and legislation that take a long-term view of technology evolution. This will also ensure the right framework to safeguard citizens’ private and sensitive information while enabling innovators and builders to innovate on top of a stable and sound policy framework.

In conclusion, what genuinely excites me as a builder is the possibility of building products and platforms that have a positive impact on society. We proved that when we scaled digital payments to millions of Indians and solved for crucial use cases. Today, India is the leader in digital transactions, leapfrogging all nations in less than a decade. I am truly excited to see the future unfold over the next 25 years and experience how technology and protocol-driven innovations will positively impact lives.

The writer is Co-founder & CTO of PhonePe