The year 2009 was witness to major transformations. Voice giving way to data, feature phones being replaced by smartphones, desktops yielding to mobile Internet and value-added services from telecom companies moving to applications. That’s the year Nandan Nilekani, Infosys co-founder, took charge of the Unique Identification Authority of India (UIDAI). In a conversation with R. Sukumar, editor of Mint, at the Mint Cash to Digital summit held in New Delhi, the former UIDAI chairman talks about how Indians are on the cusp of a similar transformation in banking and payments. Edited excerpts:
Is Aadhaar a lynchpin or part of the lynchpin?
It is very important, it is the lynchpin.
There is a legal challenge surrounding it and if it goes what do you think can replace it?
It is not going anywhere. Aadhaar is here to stay.
What do you think is likely to happen?
On the political front, Aadhaar has really survived and flourished despite the political changes. When I stepped down as chairman in March 2014, we kept a commitment that we’ll issue 600 million Aadhaars and we kept our commitment. The new government has embraced Aadhaar. Prime Minister Narendra Modi reviews it every month in his Pragati meetings, and now it has crossed 930 million. The Supreme Court has not put any restriction on enrolment, so that will continue and will hit a billion soon.
The second thing is usage is going up. The Supreme Court had initially said it is only limited to LPG (liquefied petroleum gas), kerosene, PDS (public distribution system). But then there was an appeal. It was unusual as more than a dozen people made this appeal, state governments appealed, the regulator appealed. Then the Supreme Court further expanded it to include pensions, EPFO (Employees’ Provident Fund Organisation), NREGA (National Rural Employment Guarantee Act) and Jan Dhan Yojana. So it is a question of 400 million families, someone will have EPFO, someone will have LPG. In that way everyone is linked to Aadhaar in some way or the other.
Also, if I use my Aadhaar for private use, court has nothing to do with it, and this way, private use will go up. Apart from some restrictions on government schemes using it to send money, everything else is doable these days. The argument in the Supreme Court is something different. The question is do I have a right to privacy? And I can’t answer that because that is talking about phone tapping, surveillance. Aadhaar is just a small part. Aadhaar is far more secure than anything else.
Today, iPhones are not safe at all. Whatever you search goes to Cupertino, someone in Cupertino knows what you are doing, Google knows what you are searching. So activists going for conference anywhere are giving away their biometrics but if you want to have a programme where a billion Indians’ privacy can be saved, we are all like no! So this argument related to Aadhaar is a case of massive hypocrisy. Aadhaar is here to stay, it is not going anywhere.
Let us move to the private usage that you mentioned. I remember soon after Aadhaar was launched, you had said in a conversation with me that I shouldn’t see it as a number, I should see it as a platform for applications. So anyone can use it to do pretty much anything. Do you see the new payment companies, e-wallets beginning to use this?
Yes, they will start with this. Take the example of IDFC Bank, it’s a new bank. The Prime Minister launched it in October and they did a live demo for him where they got their customers from Madhya Pradesh to withdraw money using IDFC Bank’s state-of-the-art micro ATM using Aadhaar authentication. The device was made by a private company, the user was a private bank, and the data verification was Aadhaar’s.
Today there are many start-ups coming up that will use Aadhaar. So many people are talking about creating Aadhaar-specific funds. So you will have an innovation ecosystem around Aadhaar, just like you have for the Internet or GPS. Just like Internet and GPS, where government-related infrastructure ultimately led to the Facebooks and Googles of the world, Aadhaar will lead to a huge number of start-ups in the next 10 years and many of them will become very large.
Coming to the slide that showed the India stack. Obviously not all of this has been orchestrated. National Payments Corporation of India (NPCI) came into being. In some ways it is providential.
The partnership between NPCI and UIDAI is one of the great success stories of collaboration in India. When I took charge in July 2009, I got a call from N.V. Nair saying we have created a company called NPCI and I asked him what it was all about. He said RBI shouldn’t be in the payment system, it should be the regulator. So they made NCPI, a non-profit section 25 company owned by banks. This company was made coincidentally at the time of Aadhaar. Then I got a call from deputy governor of RBI Usha Thorat saying UIDAI needs to be used in banks as well. Over the past 6 years there has been a fabulous partnership between UIDAI and NPCI. Creation of NPCI was our priority—to manage ATM and ACH (automated clearing house) transactions.
What do you see as a big challenge to this?
On the Aadhaar front, more clarity from the Supreme Court is required. Ideally the government should pass a law. We framed a law and now it is in Rajya Sabha for many years. It will be great if this government says let’s close that and pass the law. On the regulatory front, RBI, I think, has done a great job. Regulatory innovation is a brilliant case study on just payments because they started by first allowing Prepaid Payment Instrument Licenses. They gave it to many people and a lot of people started coming in. They soon became online wallets and that’s what led to the Paytms of the world.
So I think they created innovation in payments by bringing in new people into the game who are not the traditional guys and that is how prepaid instruments happen and then they legitimized it even further by giving them a bank licence. It is a brilliant game of calibrated innovation and competition in the payment sector.
What does this mean for the banks? A significant retail portion of their business is undergoing major churn, seeing a lot of new players coming in. I think from the customer point of view, interacting with these new players is going to be a lot easier than with banks. In this case, what happens to the banks?
This technology is open to everyone. Whatever I described is public information and it is for public utility, it is not owned by any company. What happened in the West, after building Internet and GPS, after 9/11, focus of the government shifted to terrorism, surveillance and they seeded a lot of it to the private markets. So today in the West, this stack doesn’t exist completely and what exists is owned by the private companies, owned by the Googles, Facebooks of the world.
We are the only country which has a public stack which is built for any usage. So this stack can be used by a start-up to create the next-generation bank or it can be used by an existing bank. Then the question is how? So it’s a level playing field, it’s a public good both have access to, both have access to technology and capital, both have access to brain power, both have access to everything, now it is up to them. I am not sitting here saying who wins the game. It doesn’t matter to me but the game is changing for ever and it will change in five years. It’s up to the banks to say they will use this technology and push back the new competition.
From the regulatory point of view, there is the obvious use to monitor transactions, to make your tax maintenance network better. Is that right?
No, I think that is going to need laws. For example, there are already laws that require you to report high value transactions to the regulator. So that’s a different thing but obviously digitization is going to help. A proper legal system will help to reduce black money but I think the argument is that we need to attract people into the digital economy. In other words, if I have a digital record of my payments, it will help me to get a loan.
So the whole idea is that instead of going to a chit fund or a money lender, if I can get a loan at the same efficiency and much lower cost on my phone, that is good enough reason for me to be in the payments system. So we have to make it attractive for people. Credit is the killer app of digitization.