India is home to the world’s largest biometric identity program. The Unique Identification Authority of India has spent seven years collecting fingerprints, iris and facial scans for over 1.167 billion enrolled citizens. The World Bank's Chief Economist, Paul Romer, described it as "the most sophisticated ID program in the world".
The ID system known as Aadhaar (which means foundation in Hindi) has enabled electronic identification and authentication of any resident in India that is registered within the Aadhar platform. Authentication of a resident is done using biometrics /iris scan (‘who you are’) combined with one-time password sent to the user’s mobile phone (‘what you have’). The data of each person is tagged to a unique 12-digit identification number.
Whilst established in 2009, Prime Minister Narendra Modi has pushed the system’s adoption into everyday uses such as buying a phone, getting utilities connected or conducting financial transactions online. As of 31 December 2016, the Aadhaar platform has authenticated over 4.06 billion transactions.
Impact on Corporate India
Companies have enthusiastically adopted Aadhaar, for example using it to authenticate job seekers, blood donors and loan applicants. Samsung offers devices with Aadhaar-compliant iris scanners embedded while Microsoft has integrated the biometrics into its Skype video-chatting service so users can authenticate themselves using the government database.
One of our portfolio holdings, Reliance Industries has acquired over 108 million customers within 9 months of its launch in September 2016 for its telecom offering Reliance Jio. They were able to do this using a simple Aadhaar based e-KYC (know your client) process. The ease and speed (less than 5 minutes) of activating an account, enabled Jio to onboard an average 600,000 subscribers per day, a feat which was previously unthinkable for companies. Imagine if we had this sort of efficiency here instead of having to line up at an Optus store!
Another company we own in our portfolio is, Kotak Mahindra Bank, a private sector bank in India. They have launched a unique full service digital banking ecosystem which offers a completely digital and paperless account opening experience using their mobile banking app. Kotak was the first bank in India to integrate the newly introduced Aadhaar based OTP (one-time password) authentication process for account openings on mobile. Under this offering, Kotak provides a zero-balance savings account with zero charges for all digital transactions, where customers can earn up to 6% p.a. on their savings account balances. This initiative will enable the bank to double its customer base to 16 million customers over the next 18 months and will drive the organic growth agenda as well as drive financial inclusion, particularly in rural India.
The Aadhaar Advantage
We believe that Aadhaar will provide significant advantages to both private and public sectors in India as it will;
Increase financial inclusion throughout India
Enable the reduction of cash payments in the system
Significantly reduce corruption involved in the transfer of social benefits and subsidies in India
Ensure that social security benefits will be made available to those who require it the most
Disrupt the KYC processes adopted by corporations and governmental agencies, reducing the time required to conduct diligence and offer services.
Help businesses innovate and grow rapidly using digitisation and Aadhaar enabled e-KYC.
Lower slippage will reduce fiscal deficits and government borrowings, lowering interest rates in the economy and increasing government’s ability to increase developmental spend.
To find out more on how Aadhaar works, you can check out uidai.gov.in
Mugunthan Siva is Managing Director of India Avenue, an Australian based boutique asset management company with offices in Sydney and Mumbai. He has over 20 years experience in Australia and is lead portfolio manager for the India Avenue Equity Fund.