India’s Approach to Open Banking: Some Implications for Financial Inclusion

Abstract

Chapter 11 continues the regional survey with “India’s Approach to Open Banking: Some Implications for Financial Inclusion,” by the IMF’s Yan Carrière-Swallow, Vikram Haksar, and Manasa Patnam. The authors examine how the development of the digital infrastructure known as the “India Stack”—including an interoperable payments system, a universal digital ID, and other features—is delivering on the government’s objective to expand the provision of financial services. While each individual component of the India Stack is important, the authors argue that its key overarching feature is a foundational approach of providing extensive public infrastructures and standards that generates important synergies across the layers of the stack. Until recently, a large share of India’s population lacked access to formal banking services and was largely reliant on cash for financial transactions. The expansion of mobile-based financial services that enable simple and convenient ways to save and conduct financial transactions has provided a novel alternative for expanding the financial net. The stack’s improved digital infrastructures have already allowed for a rapid increase in the use of digital payments and the entry of a range of competitors including fintech and BigTech firms.

Fintech and Financial Inclusion in Southeast Asia and India

“…The “India Stack” approach to financial inclusion contains four layers of digital infrastructure that have been introduced gradually over the last decade: The Aadhaar digital ID system that allows for identity verification and for the mapping of information across datasets; The Unified Payments Interface's interoperable payments system, implemented by a set of open application programming interfaces; A system that for allows for the verification of digital documents that can replace traditional paper analogs; and The “consent layer”—which is not yet fully operational—that will involve the operation of data fiduciaries that act as intermediaries between individuals and financial companies. (Carrière‐Swallow et al ., 2021). …”

“…Also, India's regulation of Fintech payment firms is relatively strict compared with regulatory regimes in Southeast Asia. They either have to become licensed as payment banks (a newly created category of simplified bank which only takes deposits and makes transfers and remittances) and be directly regulated by the RBI, or run their payments through a licensed bank (Carrière‐Swallow et al ., 2021). This may tend to limit entry into the sector.…”

The Journey to Open Finance: Learning from the Open Banking Movement

“…50 Overall, the open banking universe is a patchwork of approaches driven by different aims, from enhancing competition to driving innovation to financial inclusion. 51…”

Building Regulatory and Supervisory Technology Ecosystems

“…Launched in 2010, this is India's national biometric identification system in which a registered person receives a unique 12-digit identification number. 69 Almost 90% of the Indian population now has a digital ID that allows them to access a number of financial services.…”