Cracking the Code to Financial Inclusion: The India Tech Stack

The Indian financial services sector has undergone a remarkable transformation over the years. It all started in the 1970s with the nationalization era, which saw the government take over most financial institutions. In the 1990s, things took a turn for the better when the government abolished the License Raj, paving the way for private players to enter the banking and financial services industry.

This was a turning point for the industry as it gave rise to some of today’s most significant private sector financial services brands such as HDFC, Kotak Mahindra, Axis, and ICICI. These brands have evolved into full-service financial conglomerates over time, providing a wide range of financial services to customers. During the same period, Non-Banking Financial Companies (NBFCs) emerged to cater to the growing retail and wholesale credit demand in the country. While wholesale NBFCs struggled to generate scalable business models, retail-focused NBFCs have thrived.

This evolution of the Indian financial services sector has been instrumental in the growth of the country’s economy,
providing access to finance and capital for businesses and individuals alike. The impact of this transformation is evident today. It continues to shape the future of the industry, providing opportunities for new players and innovations to drive growth and development.

India Financial History

In recent years, there has been an increasing focus on paving the way for financial inclusion across India, particularly in India 2 and India 3. In just a decade, India has been able to achieve an impressive 80% financial inclusion rate, a feat that would have taken almost fifty years using non-digital growth methods, according to some informal estimates. This achievement can largely be attributed to the widespread adoption of smartphones, low-cost data, and persistent government push. The cornerstone of the government’s push is the JAM trinity, referring to Jan Dhan Yojana, Aadhaar, and mobile phones. It was launched in 2014 to create a secure and stable digital ecosystem in India.

  •  The first component of JAM, Jan Dhan Yojana (PMJDY), is a financial inclusion scheme aimed at providing banking facilities to all citizens, particularly those who do not have a bank account. As of Dec’22, the total balance under PMJDY stood at `1,80,857 crores. Further, out of the 47.84 crore beneficiaries, 26.54 were women.
  • The second component of JAM is Aadhaar, which is currently the world’s largest biometric identification system with over 1.2 billion registered users. More on this later.
  • The third component of JAM is mobile phones, which have become ubiquitous in India. The number of smart phone users in India is estimated to be close to 700 million, making India the world’s second-largest smartphone market after China.

The Indian tech stack has been built on top of the JAM trinity and consists of three layers: the identity layer, the
payments layer, and the consent and data empowerment layer. APIs, created using a combination of public
infrastructure and private innovation, form the bedrock of these layers and can be tailored to meet the specific needs of consumers.

1.The Identity Layer

The identity layer forms the foundation of India’s tech stack and is built on the Aadhaar digital identity system. Aadhaar is a unique 12-digit identification number assigned to every resident of India. It is based on biometric and demographic information, including fingerprints, iris scans, and a photograph.

With the Aadhaar system, individuals can open bank accounts, apply for loans, receive government benefits, and more, all with a single identity document. In addition to Aadhaar, the identity layer also includes other digital identity systems such as eSign and e-KYC.

e-KYC is a process that allows individuals to provide their identity and address details to service providers electronically, without having to provide physical copies of their identity documents. This simplifies and streamlines the process of accessing government and private sector services.

eSign is an electronic signature service that enables citizens to sign digital documents using their Aadhaar-based digital identities. This service eliminates the need for physical signatures, which can be time-consuming and inefficient. eSign also provides greater security and verification, as it uses Aadhaar-based authentication to ensure the identity of the signer.

Together, these systems constitute the identity layer of the Indian tech stack, which is crucial for facilitating digital transactions and services. By providing citizens with a secure and reliable digital identity, these systems have helped to drive the adoption of digital services across the country.


 2.Payment Layer

The payment layer is a critical aspect of India’s tech stack and has played a pivotal role in boosting digital payments in the country. JAM ensured that almost every citizen had a bank account, which laid the foundation for the success of the payment layer. The payment layer is anchored on the Unified Payments Interface (UPI), a real-time payments system developed by the National Payments Corporation of India (NPCI). UPI has transformed the payments landscape in India, making it easy and secure for people to make and receive digital payments.

One of UPI’s biggest strengths is its interoperability across different banks and payment service providers. Users can make and receive payments without the need for cash or checks, using their mobile phone number or a unique virtual payment address (VPA). This has made it convenient for individuals and businesses to transact even in remote or rural areas where traditional banking services may be scarce.

The widespread adoption of UPI has been instrumental in driving digital payments’ growth in India, and the payment layer built on top of JAM has revolutionized the way people make and receive payments. In fact, the democratic and inclusive digital network is now the benchmark for many countries, and its rising clout is a great advantage. Google famously advised the US government to copy UPI, and there is a collaboration with Singapore to directly link the online payments system. Many success stories have emerged, and currently, MoUs with thirteen countries are being negotiated. This is no mean feat, especially since this exponential growth has happened in just six years.

Very recently, the Reserve Bank of India (RBI) has also approved the expanding of UPI transactions to allow credit payments. This will allow individuals with credit lines from banks to make payments over UPI. A host of new credit products can then emerge, mimicking credit cards but without the infrastructure cost. This will help widen the credit base, while simultaneously reducing the cost of disbursement.


3. Consent and Data Empowerment Layer

 The consent and data empowerment layer is an important part of India’s tech stack. The layer provides a set of tools and protocols that enable citizens to share their data securely and efficiently with government and private sector entities, while maintaining control over how their data is used.

The consent and data empowerment layer consists of several crucial components. One component is the Digital Locker (DigiLocker). This is a cloud-based platform that enables citizens to store and share digital copies of essential documents like passports, driver’s licenses, and academic certificates. DigiLocker employs Aadhaar-based authentication to ensure the security and authenticity of the stored documents.

The Unified Mobile Application for New-age Governance (UMANG) app is another key component of the layer. It provides citizens with access to various government services and information via a single platform. Citizens can manage their personal data, including their Aadhaar details, and access services such as passport applications and tax payments.

Another vital component of the layer is the Account Aggregators. They act as intermediaries between financial information providers and financial information users. They help to securely transfer encrypted data by receiving consent from users to share their personal financial information. In other words, they act as middlemen to ensure that financial information is shared only with the user’s consent and is kept secure during the transfer process.

The consent and data empowerment layer is designed to give citizens greater control over their personal data and to facilitate secure and efficient sharing. By providing citizens with greater control over their data, the layer aims to foster trust and transparency in India’s digital ecosystem.

Having established the significance of India’s tech stack in transforming the financial services landscape, let’s delve deeper into Account Aggregators and also look into OCEN and ONDC, some of the key government measures.


Account Aggregator

Aadhar and UPI have transformed access to banking and payments. However, only 20% of India’s population has access to formal credit.[i]

To address this imbalance, RBI introduced the Account Aggregators framework (AA)  in 2021 – under which a new class of NBFCs, Account Aggregators would operate.

While AAs themselves will not have access to personal data, they will enable end-to-end encrypted sharing of information between the Financial Information Providers (FIPs) and Financial Information Users (FIUs). AAs will be responsible for maintaining the infrastructure and managing the consent of the customers.

The primary objective of AAs is to make it easy for individuals and businesses to access and manage their financial data in one place, without repeatedly sharing sensitive information. It also enables financial institutions to quickly and securely access financial data for credit assessments, loan applications, insurance claims, and other financial services.

For example, a customer may have a savings account with one bank, a credit card with another, and an investment account with a third financial institution. Instead of logging in to each of these accounts separately, the customer can use an AA platform to aggregate and view all of their financial information in one place.

This empowers borrowers to have greater control over their financial data, while simultaneously allowing lenders to access standardized, real-time data.

This democratization will lead to a reduced cost of credit assessment and loan processing, quicker approvals, and lower interest rates. Additionally, it will lower entry barriers and increase market penetration. Consumers will benefit from the elimination of physical signed copies, form filling, and document keeping. They will also be able to shop around and get the best deal possible for themselves.

Account Aggreagators

Up till end of Mar’23, an amount a little more than ₹40 bn ($490 mn) has been disbursed via the AA mechanism. About 50% of this amount has been MSME lending.[ii] Axis Bank, a leading Indian bank, reported a 30% MoM growth in disbursement while also maintaining a nil fraud rate.

Currently, one billion accounts can avail the AA facility. This number is expected to increase to three billion before FY 25.


Open Credit Enablement Network

 Working in tandem with the Account Aggregator framework is the Open Credit Enablement Network (OCEN). This is a network protocol with a standard set of APIs. The platform has been launched by the RBI, with the intention of creating a common language for the exchange of credit-related information between various stakeholders.

Currently, MSMEs find it difficult to obtain loans at the right cost and right time due to the cumbersome underwriting process. As a result, they often turn to money lenders who charge high-interest rates. The OCEN open platform aims to address this issue by allowing online marketplaces, be it fintechs or food delivery apps, to build lending capabilities into their existing offerings. These marketplaces will be called Loan Service Providers (LSPs). They will embed the OCEN protocol on their platform and on-board lenders. This will allow potential borrowers to register and receive credit from multiple lenders on the LSP platform. The structure will work atop the AA framework, and lenders will need to implement the FIP and FIU models to participate.

This could enable the development of numerous new lending options, catering to the diverse needs of borrowers while also reducing the cost and time required to process loan applications, enabling faster credit disbursal. Moreover, this will also enhance data sharing between the participants in the lending ecosystem, thereby creating a more transparent and efficient lending environment. Lastly, this will help achieve scalability in the micro-credit segment, making it easier to reach more borrowers and meet their credit requirements.


Open Network for Digital Commerce

An initiative that will enable OCEN is the Open Network for Digital Commerce (ONDC). It aims to revolutionize the way commerce is conducted in the digital space by creating an open, secure, and interoperable protocol. At its core, there is a block chain technology which provides a transparent and trustless mechanism for conducting transactions.

Currently, in order to complete any transaction, both the buyer and seller have to be present on the same platform. 60% of such e-commerce sales are controlled by Amazon and Flipkart. This puts SMEs at a disadvantage due to their low bargaining power and high switching costs. Further, only about 5% of MSMEs have an online presence.

To address this, ONDC will bring interoperability to ensure that participants such as buyers, sellers, logistics providers, and payment service providers are not bound to any specific platform. By creating a more equitable environment, more MSMEs will be encouraged to establish an online presence and utilize e-commerce platforms.

Sellers can register with ONDC, and their inventory is broadcasted to potential buyers through an open network, enabling sellers to reach a larger customer base without having to register on multiple platforms. Buyers can search for goods or services on any platform and receive options from registered ONDC sellers.

Overall, the aim is to offer an efficient and secure digital marketplace for businesses and consumers alike. ONDC has ambitious aims of gaining 25% population penetration and 75% pin code penetration by 2027.

OCEN and ONDC will bring more customers and MSMEs to online platforms and also give them access to credit on these marketplaces. Further, the transaction-based data available via ONDC will enable OCEN-compliant lenders to better underwrite their loans. Within this, the AA framework will ensure availability of standardized data, helping reduce cost of credit.

The above initiatives demonstrate the clear push towards modular architecture. The combination of interoperability, decentralization, and unbundling is proving to be a game-changer for financial inclusion in India.

A deep commitment to ensuring democratization of data and creating a conducive environment for all has been shown by the government.  Private players are picking up where the government has left off and are leveraging the government infrastructure across segments of the financial sector. India is leading the way in financial inclusion, and the world is taking note.

This article is written by Soumya Turakhia and Dhruv Maniyar as of May 2023. 


[i] Empowering Credit Inclusion: A deeper perspective on credit underserved and unserved customers – CIBIL

[ii] IIFL Securities Report on Account Aggregator



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