The explosive emergence of Aadhaar as a resident identity, possibly the resident identity is making it a springboard for launching a new generation of products and services for enhancing residents experience at all levels of their interactions with government and business. While opening up new business opportunities at national levels for big players, Aadhaar identity infrastructure is also building enabling elements such as Open API's for entrepreneurs to "stand on the shoulders" of this massive infrastructure and flourish through innovative solutions. This blog post identifies value chain that is already put in place and how some forward-looking enterprises have already arrived there. Aadhaar enabled verification is to business transaction what ignition key to vehicle. It launches into new journey
Have Infrastructure, Will Innovate
Historically in India, government sponsored projects led by inspiring individuals have transformed the localities, regions and often entire nation.
- Sir M.Visvesvaraya's Krishna Raja Sagar (KRS) dam metamorphosed barren land , of Mysore State ( Now part of Karnataka) into flourishing fields.
- Dr. Kurien's inspired co-operative movement converted penniless farmers into productive family heads.
- Dr. Swaminathan's green revolution made nation self-sufficient in food and fed many a hungry millions.
- Sam Pitroda C-DOT unleashed communication revolution through what most people recognize as " STD" booths that created lakhs of jobs and enabled people to talk to their kith and kin
Latest in the list of such projects is Nandan Nilekani's Aadhaar which is heralding what I call soft revolution in lines of White and Green revolutions of the previous decades. It is going to change of the face of Indian enterprises and the way they operate and innovate.
The green revolution enabled each farmer to grow efficiently and while millions of farmers did so, it created a huge stockpile of agricultural produce. More importantly it helped India to gain food independence. In the similar note, White revolution enabled a small farmer to contribute milk as less as one litre or even lesser. But in the process, the aggregated collection resulted into million of litres of milk. The enterprise now known as AMUL- Taste of India . Going forward, Aadhaar Infrastructure is enabling enterprises to unleash a software revolution which is as deep and wide as previous revolutions and perhaps even bigger and broader.
Pre-Aadhaar Days: The Tyranny of Everyday Transactions
Today a typical business transaction almost always involves the following steps. (1) establishment of identity of service seeker (customer), (2) collection of document(s) provided by the service seeker as proof of her identity, (3) verification of the same and (4) documenting the same and preserving it for future business and statutory compliance. This mandatory process is called Know your Customer (KYC). Every resident in India from rich to poor has to go through identity and service entitlement establishment in day-to-day life, be it opening a bank account, withdrawing or depositing money, getting a ration card, receiving pension, or during travel. In days before Aadhaar this entire process was [1] cumbersome, expensive and time-consuming. Many a business opportunities were not affordable because of the cost involved in establishing one's identity from service seeker (customer) side and to conduct verification and documentation from business side. Below is an illustration.
Example 1: Lal Singh, a migrant labourer in New Delhi lives in slum in Vasant Kunj. He saves Rs.50 everyday, which he intends to send to his native village (Hariharpur village, Bihar). Lal Singh has no ID proof, which makes it difficult for him to get a bank account. Every few months, Lal Singh saves enough money to send a remittance to his family. Initially, he used the Post Office with cost him 5% of the amount. However, his family experienced delays of a month or more in receiving the payment on certain occasions. Lal Singh now uses a private agent, who charges 5–7%of the amount. This again is an expensive system with low accountability, and the money often takes a few days to reach his village. Lal Singh also has the option of requesting for a bank account at the time of Aadhaar enrolment. UIDAI facilitates the account opening process using the above architecture. With a bank account, Lal Singh could remit money to his family and store his savings safely{1]
2.2 Example 2: While the above example is from a customer perspective, here is an example of institutional perspective of handling a paper-based transactions and associated cost
Struggle to Store Statutory documents: Traditionally Financial Institutions have been collecting application forms along with the physical supporting documents like Proof of Identity, Proof of Address, Proof of Birth, Certificate of Incorporation, Memorandum of Association, etc., from their customers in order to fulfil the KYC (Know Your Customers) Norms. KYC cannot be considered as a one-time process, it is a recurring process, where Customers and FI's are required to adhere to the KYC Norms prescribed by the Regulators. It is not only the process of collection, it is also a process of maintaining updated records.
FI's spend a lot of money / resource / time to collect, as well as maintain the physical copies of KYC records. This is creating a burden and additional work for the Financial Institutions. Maintaining Physical records have created a limitation for the Banks towards serving the customers. Some of them are as follows:
- Single KYC view of a customer not available within the various departments of a Financial Institution as KYC through physical documents were restricted to a particular department only
- Erroneous details being updated in the system without sufficient supporting documents
- KYC documents being misplaced
- Cumbersome and time-consuming document collection process
All these lead to non-compliance of KYC, resulting in tarnished brand image which is associated with huge penalties for FI's. It also results in additional fee costs, legal disputes and cash delays towards the customers during their transaction processing. Due to this Financial Regulators are enforcing FI's to be KYC compliant.
The Advent of Aadhaar Authentication: How Does Aadhaar overcome this challenge?
Aadhaar power to simplify a business transaction is immense. Aadhaar provides identity to individuals enabling them to open bank account in compliance with the KYC requirements. This is done online and involves no papers, no attested copies.
Example 1: Cost of activation of a new mobile connection can virtually come down to zero if electronic KYC of Aadhaar is implemented as authentication will be done digitally. Transaction costs are reduced substantially when Aadhaar is used as an authentication tool. "If you are taking a mobile connection, currently the cost of activation of a mobile customer is Rs 150 because you have to fill a customer acquisition form (CAF), you have to give paper documents... if you use digital identity authentication, you can fill the customer form, digitally sign it and get your electronic KYC. So, essentially the cost is equal to zero,
This is an example of changing the way business transaction done at very individual customer and micro level. However given the number Lal Singhs wishing to open bank account (or people buying a new mobile connection ) and use it for saving money and transferring to their families runs into millions the effect is very huge and great in aggregation. As many as 10 crore bank accounts have been created for people like Lal Singh using Aadhaar and Mobile linked to it. This is known as Jan Dhan Aadhar and Mobile ( JAM)
Aadhaar automates the Authentication process
The fundamental contribution of Aadhaar is that it automates the process of authentication while making it paperless and non-repudiable. It provides an identity infrastructure that can used in every situation where there is need for identifying a resident uniquely. It helps government to identify a resident uniquely and transfer benefits directly to him or her and help them avoid the classic problem of duplicates and ghost accounts. Incidentally the use of Aadhaar identity in delivering LPG subsidy has helped government to eliminate crores of ghost accounts and save up to 10,000 cores in a financial year. Although some non-government agencies dispute the quantum of saving, the fact remains the use of Aadhaar has begun saving money, however small it is. After all penny saved is penny earned.
Aadhaar is the seed of the coming of new soft revolution
The Aadhaar identity infrastructure has two fundamental features. Firstly, it is a means of eliminating the wasted efforts and materials involved in the paper based identify process that is predominantly practiced today. This could save million of minutes for the population and save tons of paper and thousands of square feet of storage spaces in offices. The dividends from such possibility is immediate and immense.
Secondly, and more importantly Aadhaar is a new infrastructure. Like any infrastructure it enables people to conduct old activities in efficient ways and enable them to do something new or innovate. For instance, a new national network of road such as Golden quadrangle enabled people to travel fast and further than it was previously possible. At another level, it enabled tour operators to add new services and routes and that in turn creates more tourists among population , In effect, a new road network make resident more mobile, creates a new transport industry and more.
Something is similar is true with Aadhaar infrastructure: At resident level , it is means of having a universally accepted identity without having to obtain, maintain, carry, copy and submit papers. For business it a way to reduce customer acquisition and documentation costs.
Aadhaar Value Chain
However Aadhaar is also an infrastructure for software innovations. It is an ecosystem wherein the community of developers can build components that can be combined in number of permutations and combinations. Each of these combinations can be serving one or more purposes. Innovators can determine missing elements , build them and increase the possible ways of arriving at new combinations. These phenomenon when gains a critical mass will create a new soft revolution wherein innovation can happen in exponential ways. Aadhaar identity infrastructure is available through well designed value chain.
1) Authentication Service Agencies (ASAs)
ASAs are agencies that have established secure leased line connectivity with the UIDAI Database (CIDR) in compliance with UIDAI's standards and specifications. ASAs offer their UIDAI-compliant network connectivity as a service to Authentication User Agencies and transmit AUAs' authentication requests to CIDR. An ASA could serve several AUAs; and may also offer value added services such as multi-party authentication, authorization and MIS reports to AUAs.
2) Aadhaar authentication user Agency (AUA).
AUAs are agencies that use Aadhaar authentication to enable its services and connects to the CIDR by itself (as an ASA) or through an existing third-party ASA. It is also possible that an AUA engages more than one ASA. In order to directly connect to the CIDR, an AUA needs UIDAI's approval to become an ASA. An AUA could also transmit authentication requests from other entities that are "Sub AUAs" under it (see details on Sub AUA below).AUAs can also act as an aggregator offering authentication services to Sub-AUAs below them and may also offer value added services such as multi-party authentication, MIS reports and authorization to their Sub AUAs
Example:
Aadhaar Bridge is a registered AUA and KUA with the Unique Identification Authority of India. ("UIDAI") Aadhaar Bridge offers sublicenses (Sub AUA) - by which you can access APIs for conducting auth and e-KYC transactions.
3) A live example of Aadhar-based enterprise
DigiKYC is a Bangalore based start-up that offers Aadhaar and other government issued document based authentication services. Many microfinance institutions provide assistance to unorganized sector labours. The only document these labours have is Aadhaar Number. For such institutions, DigiKYC authenticates labour's Aadhaar numbers. It is a sub AUA and avails services from AUA
4) More the enabler elements, more the scope of innovation
The National Payments Corporation of India (NPCI) has launched a new initiative that calls for the unification of payment interfaces throughout the country. The initiative aims to give consumers more access to financial services through their mobile devices in order to accommodate the growing demand for mobile commerce. It is released a new UPI ( Unified Payment Interface) and it is expected to enable payments be made through mobile devices. Sending and receiving money becomes as easy as sending text messages. More resources are on the way
Conclusions
The above discussion sheds light on the value chain created to harness Aadhaar identify infrastructure, Apart from the DigiKYC mentioned above, there are many startups which are using this infrastructure and developing new products and services. Some of such ventures include Trust-ID- a mobile app that helps you verify anyone's identity in less than 1 minute, using Aadhaar. It is time for Indian entrepreneurs to take note of this huge opportunity and build services and help India enter into a soft revolution.
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