Google’s driverless car is one kind of innovation, and India has several types of innovations being worked on, but the biggest developments this year and over the next are going to be centred around the stack of Aadhaar-based APIs (application program interfaces) and mobile payments APIs — the India Stack, so to speak — and these are about going paperless, presence-less and cashless. This will fundamentally alter business processes in corporations and in government; it means every business and application in government can be re-imagined.
Take the example of mutual funds. India was one of the early adaptors of technology in capital markets with the advent of NSE, NSDL, etc, and we had dematerialised trading from the 1990s. But since then number of retail investors has stagnated. If you look at mutual funds, the cost of acquiring a customer is Rs 1,500, so you need a portfolio of at least Rs 3 lakh and so you can target maybe 3-4 million households. If acquisition costs can come down to Rs 100, you need a break-even portfolio of Rs 20,000 and can now target 34 million households; at Rs 10, the break-even is Rs 2,000 and the target is 105 million households! This is where the innovation is taking place right now. The Securities and Exchange Board of India is focused on reducing these customer acquisition costs.
The cost of acquisition is high because the front end is cumbersome, you need an in-person verification for ‘know your customer’ (KYC), you need a ‘wet’ physical signature. Now look at what’s happened. Aadhaar gives you basic identity and you have online authentication for presence-less verification, e-KYC for KYC, e-sign allows you to do a digital signature with Aadhaar and along with the digital locker, allows you to go paperless, and the National Payments Corporation of India with its upcoming Unified Payment Interface, which will revolutionise interoperable mobile payments, allows you to go cashless. Once you can on-board a customer without the conventional front-end methods, the costs plunge… Entire industries can change. You move from a low-volume, high-value, high-cost transaction paradigm to a high-volume, low-value, low-cost transaction paradigm. This will completely transform the financial services sector and lead to dramatic market expansion.
The big innovations in the US were done with government/defence grants — the driverless car came out of a DARPA (Defense Advanced Research Projects Agency) grant and both the internet and GPS came out of government spending — but when innovation moved to the private sector, you ended up with the closed systems of today which can’t be innovated upon in a mass manner. Three to four Silicon Valley companies control the digital universe. In India, on the other hand, what we have, thanks to Aadhaar and the India Stack, are open platforms that can be mass-innovated upon. Financial services are the most obvious area that will boom with such innovation — and in the same way that mobiles boomed when the industry moved to small-value prepaid transactions. In education, putting school/ college degrees in digital lockers can eliminate the fake degree racket; you can re-engineer property markets with digitally signed e-certificates.
The explosion of data and the digital exhaust from various transactions will lead to another interesting set of innovations that are now gaining traction.
Today, around 3% of Indian businesses get organised credit. When a Flipkart has, say, 100,000 vendors, it has data on what that vendor has sold, what the returns were, and has a payment history…
Suddenly, the credit system explodes from one where there is no data about borrowers to one which is data rich; this will be further amplified by innovations that will take place around algorithms to fine-tune the credit risk and underwriting strategy. The data explosion will need to be combined with a consent architecture so the user is in charge of his or her own data.
A carpenter, to use another example, can use such systems to create a track record of what he’s done — on the phone — and once clients can track this on various apps, he can get a premium for his services that is not possible today since you don’t know how good/bad the carpenter is.
Practo has lots of data with thousands of doctors and millions of patients… Think of the applications as this gets bigger — the government can know of a disease outbreak as it happens, of shortages of medicines in certain areas…
Related to this is what can be called sousveillance, which is surveillance from below. You take a picture of a pothole in the road, of a toilet that has no water, of dirt mounds, and put it on the cloud. Over a period of time, the data becomes so compelling, the authorities are forced to respond… What you get is a new kind of governance that, unlike the earlier/present one, is accountable in a more instantaneous kind of way for certain types of services.
The other set of innovations are around organising India’s markets. One of the start-ups I’ve invested in that I’m excited about is Fortigo, which is aggregating markets for truckers and brokers, making what is essentially an unorganised market into an organised one. In the past, you brought in efficiency into markets through large companies — big farms, big trucking companies, big retailers — but you can now do it with orchestrated networks.
The upending of Coase’s law by technology is the best thing that has happened for India.
With EkStep types of apps, we’re looking at changing the way educational content is delivered to students, using smartphones. Once the platform is ready, others can add layers upon it to, potentially, deliver all manner of skilling/education on it, while EkStep will focus on applied literacy and numeracy. In the West, the internet is always on, everywhere, and each user has individual access — but this is not the case in India, so that’s where the offline internet has developed and usage will be shared. You now have offline maps and offline YouTube. EkStep will be like this, you can download online and have community participation (NGOs and schools) and usage offline.
While the government has been proactive in the way it supported Aadhaar, for instance, or in coming up with governance apps, with a VC/angel/incubating network developing well with platforms like LetsVenture, ecosystem building by iSPIRT, my generation of entrepreneurs turning into investors and mentors, and a whole bunch of innovators emerging in many cities, I think 2016 is going to be a great year, a year in which we will see the start of very fundamental changes in the way Indian business and governance is structured. (As told to Sunil Jain)