India’s digital platforms like Aadhaar (digital ID) and UPI (Unified Payments Interface) have revolutionized financial services in the world’s most populous nation, and are widely recognized as benchmarks in the industry worldwide. In this in-depth interview, Rajashekara V. Maiya, Head of Business Consulting at Infosys Finacle, talks to one of the leading lights behind these systems, Dr. Pramod Varma, Chief Architect of Aadhaar & India Stack, Co-Founder of FIDE.org, CTO of EkStep Foundation and Co-Chair of CDPI.dev. Dr. Varma discusses the architectural principles behind Aadhaar and UPI, lessons from building digital public goods, the future of the banking ecosystem, and best practices for banking leaders and governments undertaking digital transformations.
Authors
Rajashekara V. Maiya
Infosys Finacle
Vice President and Global Head- Business Consulting
Dr. Pramod Varma
Aadhaar & India Stack
Chief Architect
Thank you for joining us, Dr. Varma. To begin, can you discuss the success of platforms you've been part of and the architectural principles behind them?
Absolutely. There are core architectural principles, such as scalability, security and evolvability, that apply universally. When building platforms like Aadhaar, UPI or DigiLocker, minimalism was key. The infrastructure must be simple, allowing third-party applications to innovate on top of it.
For instance, when designing Aadhaar, we focused on creating a basic, scalable and secure identity platform that could support a vast number of users. This required us to prioritize minimalism, ensuring that the system would not be burdened with unnecessary features. By keeping the infrastructure minimal, we enabled various sectors to adopt and integrate the platform for their specific needs, such as KYC for banks, identity verification for government services, and more.
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How do public infrastructure projects differ from commercial products?
Public infrastructure projects, unlike commercial products, act as foundational layers. They are utilities meant for widespread use and integration, not standalone solutions. This minimalistic approach ensures they remain flexible and adaptable for various applications across sectors.
The distinction lies in the end goals and usage. Commercial products are often feature-rich and tailored to deliver specific value propositions directly to the end-user. In contrast, public infrastructure projects are built to provide a basic framework that can be used by multiple applications to create value. For example, the internet is a public infrastructure that supports countless applications, from social media to online banking.
When we designed Aadhaar, UPI and other platforms, we aimed to create building blocks that others could use to innovate. Aadhaar provides a robust identity verification system, but its true value is realized when it's used by third-party applications to deliver various services. This approach of creating foundational, minimalistic infrastructure is crucial for scalability and adaptability.
India's diverse and large-scale population poses unique challenges. How did you address these?
India's scale and diversity require rigorous design principles to ensure inclusion. We focused on data minimalism and universal accessibility. For example, Aadhaar avoids collecting excessive data to prevent exclusion of those without certain information, such as orphans or people with disabilities.
The diversity in India is not just about the population size but also the vast differences in language, culture, economic status, and even geographic conditions. Designing a system that could work for everyone required us to think deeply about inclusion. For instance, we had to ensure that the system could be accessed by people in rural areas with limited internet connectivity and by those who might not have traditional identity documents.
Data minimalism played a crucial role in this. By asking for only the most essential information, we reduced the barriers to entry and made the system more accessible. This approach also helped in maintaining privacy and security, as collecting less data reduces the risks associated with data breaches.
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UPI has become a global benchmark for real-time payments. What advice would you give other countries adopting similar systems?
The key is investing in digital public infrastructure. Countries should build interoperable digital rails to ensure equity and innovation. The G20’s endorsement of Digital Public Infrastructure (DPI) is crucial, and sharing open-source solutions globally can expedite progress.
Creating a successful digital payment system like UPI involves several critical factors. Firstly, the system must be designed to handle a high volume of transactions securely and efficiently. This requires robust infrastructure and a focus on scalability from the outset.
Secondly, collaboration is vital. In India, the success of UPI was largely due to the collaboration between government agencies, financial institutions and technology providers. This kind of cooperation ensures that the system meets the needs of all stakeholders and can be widely adopted.
Thirdly, open standards and interoperability are essential. By making the system open and allowing different applications and platforms to integrate easily, you foster innovation and competition, which leads to better services for users.
Security is a major concern with digital transactions. How does UPI address this?
UPI has robust security measures, with one of the lowest fraud rates globally. Security is embedded in the protocol with encryption and user awareness campaigns. We also have strong detection, reporting and resolution systems to handle issues swiftly.
Security in digital transactions involves multiple layers. At the core, UPI uses advanced encryption techniques to protect transaction data. This ensures that data is secure both during transmission and at rest. Additionally, UPI incorporates two-factor authentication, which adds an extra layer of security by requiring users to verify their identity using two different methods.
Moreover, continuous monitoring and real-time fraud detection systems are in place to identify and mitigate potential threats. These systems analyze transaction patterns and flag any suspicious activities, allowing for quick intervention.
User education is another critical aspect. Regular awareness campaigns help users understand the importance of security practices, such as not sharing their PIN or OTP with anyone. By educating users, we can reduce the likelihood of social engineering attacks and other forms of fraud.
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The banking value chain has seen significant unbundling with innovations like UPI. What do you see as the next big areas for unbundling in banking?
Beyond payments, areas like account management, lending and insurance are ripe for unbundling. By using open APIs and creating modular, interoperable systems, banks can offer more tailored and innovative services.
Unbundling allows different players to specialize and excel in specific areas, leading to better services and more innovation. For example, in lending, the process can be divided into multiple stages such as KYC, credit scoring, loan disbursement and repayment collection. Each of these stages can be handled by specialized entities using open APIs, making the entire process more efficient and user-friendly.
Similarly, insurance can be unbundled to allow for more personalized and flexible products. By using APIs, insurance providers can offer customized policies based on real-time data and user needs, rather than relying on one-size-fits-all solutions.
Account management is another area with significant potential for unbundling. By allowing third-party services to access and manage user accounts through APIs, banks can offer a wider range of services without having to develop everything in-house. This approach not only enhances customer experience but also fosters innovation by leveraging the capabilities of fintech companies.
What personal motivations drive your commitment to these transformative projects?
I've been fortunate to have great mentors and be part of inspiring teams. Seeing the impact of small, committed teams on a large scale keeps me motivated. The potential to make a significant difference drives my passion.
My journey has been shaped by the people around me and the opportunities to work on projects that have a real impact. For example, working on Aadhaar showed me how technology can transform lives by providing a digital identity to millions of people who previously lacked one. This sense of purpose and the ability to contribute to something larger than myself has been a constant motivator.
How do you stay updated with the latest technological and industry developments?
Continuous learning is crucial. In today's fast-paced world, staying updated requires a proactive approach. I make it a point to set aside time each day for learning, whether it's reading the latest research papers, following industry news, or listening to podcasts on various topics. Staying curious and engaging with a variety of sources helps me stay abreast of advancements. This habit not only keeps me informed but also inspires new ideas and approaches to the challenges I work on.
Additionally, participating in conferences and networking with other professionals in the field provides valuable insights and perspectives. Engaging in discussions and debates helps refine my understanding and keeps me at the forefront of technological and industry trends.
Thank you for your time and insights, Dr. Varma. This has been incredibly enlightening.
Thank you, Maiya. It’s been a pleasure. Conversations like this are always valuable, as they not only provide a platform to share experiences but also spark new ideas and collaborations.
