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Friday, December 23, 2016
Indian business prepares to tap into Aadhaar, a state-owned fingerprint-identification system
THERE are two ways to sign up to Jio, a new and irresistibly priced mobile-telephony service which Mukesh Ambani, the boss of Reliance Industries, a conglomerate, launched in September 2016 and which is luring tens of millions of new customers each month. One way requires a wad of documents, multiple signatures and plenty of patience, since Jio takes days or weeks to go through “know-your-customer” procedures. The second way is magically simple: the person rests a finger on an inch-wide scanner, and if the print matches the identity the customer is claiming, Jio downloads the information it needs from the Indian authorities and activates the phone line within minutes.
Jio is tapping a database called Aadhaar, after the Hindi word for “foundation”. It is a cloud-based ID system that holds the details of over a billion Indians. The government’s purpose in setting it up in 2009 was to help the state correctly direct welfare payments to those entitled to them. By early 2017 all Indian adults should have provided their fingerprints, iris scans, name, birth date, address and gender in return for a single, crucial, 12-digit number.
In the public sphere Aadhaar helps to distribute subsidies worth about $40bn a year. Around 300m biometric entries are linked to citizens’ bank accounts, so that money can be paid to them direct. Billions of rupees used to be lost each year through “leakage” of benefits—a euphemism for fraud in India’s often corrupt bureaucracy. Aadhaar has already saved perhaps $5bn, says the government.
But the system was designed with more than just the needs of the state in mind. The team of techies behind the project, led by Nandan Nilekani, a founder of Infosys, a champion of Indian IT, from the outset understood the importance of making Aadhaar available to all who might be able to use it, not just official departments. Aadhaar is open-access and can be used by third parties free of charge. By now, fingerprint readers are a common sight in phone shops, insurance offices, banks and other sellers of regulated products.
Some firms, such as Jio, will use Aadhaar to save huge amounts of time for their customers—not to mention a small forest’s worth of paper. The architects of Aadhaar reckon that is just the beginning. On the top of it, India is building a complex public digital infrastructure, called “India Stack”: a series of connected systems that allow people to store and share their data. These could include bank statements, medical records, birth certificates or tax filings. When connected up to a new payments system called the Unified Payments Interface (UPI), the potential is huge.
Already, businesses ranging from Bangalore startups to international banks operating in India are looking to build new businesses on the capabilities of Aadhaar and the coming India Stack. Venture-capital firms are funding hackathons to encourage software developers to come up with new ways to use the technology.
Any firm can “ping” Aadhaar to see, for example, if a job applicant is who he claims to be. One Bangalore startup, Babajob, does this for the service staff it connects to employers. It can instantly verify if a potential employee’s name and age matches that attached to the phone number he is calling from, that is in the Aadhaar database (or he must supply a code number received by text). It can be done remotely, an advance over card-based ID schemes. A similar, more secure check, using iris scans or fingerprints, can be done with mobile phones or tablets with Aadhaar-compatible iris scanners (at under $200).
This is no small feat: merely establishing someone’s identity is grit in the wheels of commerce. A typical firm in India spends some 1,500 rupees ($22) obtaining and validating client data, be it to bring a taxi driver onto a ride-hailing platform or to accept a new mutual-fund customer. Bringing down the cost can vastly expand a firm’s target market. If a lending outfit, for example, can afford to spend only 0.5% of the value of a loan on such tasks, its smallest credit will be 300,000 rupees, an amount which will limit it to the richest 15m Indians, says Sahil Kini of Aspada, a venture-capital firm. Reduce the validation cost to 10 rupees—the figure many in Aadhaar circles use—and you can viably lend to over 500m people.
The benefits of cheap, secure ID could go further. Mr Nilekani argues that verifying identity, and in turn reputation, is ever more important in business: consider star-rating systems devised by firms such as eBay, an auction giant, or Uber, a ride-hailing firm. Web users now often establish their identity using logins for Facebook, Google or WeChat to access third-party services such as newspaper websites. But none can claim to rest on a person’s real, verified legal identity in the way Aadhaar-accessed services can.
It all stacks up
For now, the Aadhaar system is used chiefly to confirm identity (which has been done 3bn times since 2010) and to share know-your-customer information such as someone’s address (300m times in the past year). But since any information can be linked to a sort of digital “locker” tied to each Aadhaar ID, there are more possibilities. A file of past digital interactions—a sort of eBay star system accumulated over different services—could also be attached. This would most obviously be useful in financial services, particularly among those who have little or no access to them now.
A potential borrower could allow a lender to have access to anything linked to his Aadhaar number: his bank statement, utility-bill payments, life-insurance policy, university diplomas and much else besides. “It increases trust,” says Mr Nilekani. “You can combine proven legal identity with lots of data. You become trustable.” Sean Blagsvedt, the founder of Babajob, compares India Stack to the advent of the social-security number system in America, which paved the way for credit bureaus, credit cards, mail-order services and, later on, e-commerce.
The economic consequences are sizeable. Instead of borrowing against assets, as is currently the norm in India, people could borrow against projected cashflows proven by past tax returns, for example. Better yet, “digitally driven” credit would shift people into the formal economy and away from the informal realm where nine in ten Indians currently work.
Another element of India Stack, the UPI, a payments system, was launched in August. Under pressure from regulators, banks have agreed to let their customers send or receive money not just through their banks’ apps but through third-party ones as well. A client of State Bank of India, for example, can just as easily make payments from his account through PhonePe, a subsidiary of Flipkart, an e-commerce website, or any other of about two dozen UPI-based apps. Mr Nilekani speaks of a “WhatsApp moment” for Indian banking, in which newcomers usurp sleepy banking incumbents, much as the American messaging app deprived telecoms operators of revenues from text messages.
Techno-optimism always warrants some caution. Just because Aadhaar has succeeded in slashing subsidies fraud does not mean the products built atop it will catch on. The UPI apps received a one-off boost from the government’s push forcibly to “demonetise” the economy (it cancelled banknotes representing 86% of all cash on November 8th), but other, private PayPal-like services did much better.
Still, other public technologies have prompted big leaps when opened to private enterprise. Once available to the general public from 2000, the GPS location system (previously reserved for the American military that developed it) did more than merely disrupt map-making firms. In time, GPS spawned Google Maps, which in turn facilitated Uber. Backers of Aadhaar argue that no one can imagine what will be built around the platform in years to come any more than the internet’s pioneers three decades ago could foresee social media or bitcoin, a digital currency.
Privacy campaigners worry that it has Orwellian overtones. In theory it remains voluntary to enroll in Aadhaar. In practice it is compulsory, since it is becoming the only way to gain access to important social services. Wary of relying on a state-backed scheme, American tech giants have treated it cautiously. Google has expressed enthusiasm for its potential, but it and Apple have yet to agree to install Aadhaar-compatible scanners on their phones.
For India’s citizens, who can use Aadhaar and India Stack to mobilise their data for their own benefit, the advantages are clearer, starting with access to cheaper credit. Some of the system’s teething problems—one hurdle has been that the hands of many manual labourers are so worn that Aadhaar cannot register their fingerprints—show just what an advance the technology could be. Indian businesses will have the chance to serve and make sense of legions of new customers. Like the scanners it utilises, the scheme’s potential is not hard to put your finger on.