Editorial

India Is Likely to Become the First Digital, Cashless Society

June 29, 2017

BY STEPHEN MCBRIDE

The top news out of India over the past 12 months has been President Modi’s move to ban 85% of the currency in circulation. However, something much more far-reaching has happened.

It’s called India Stack.

The Foundations of a New Financial System

Before 2009, half of all Indians didn’t have any form of identification, not even a birth certificate.

Without a form of identification, citizens couldn’t access services like banking, insurance, or even get a driver’s license. As such, many opportunities like starting a business were not available to them.

Then In 2009, India launched Aadhaar.

Aadhaar is a biometric database based on a 12-digit digital identity, authenticated by finger prints and retina scans.

It became the largest and most successful IT project ever. As of 2016, 1.1 billion people  (95% of the population) had a digital proof of identity.

But Aadhaar was just the beginning.

Taking Aadhaar to a Whole New Level

In 2016, India added another component to its digitized system called India Stack.

India Stack is a series of secured and connected systems that allow people to store and share personal data such as addresses, bank statements, employment records, and tax filings.

This is all accessed, and can be shared, via Aadhaar.

India Stack allows citizens to open a bank account or brokerage account, buy a mutual fund, or share medical records anywhere in India with just a fingerprint or retinal scan from Aadhaar.

Put simply, India Stack could be the framework for a new digital society.

A Cashless World Made Possible

Now, back to the biggest Indian news story of the past year, President Modi’s cash ban.

Modi’s move to demonetize the country was viewed as an isolated event. However, it was the action that forced everyone into the new digital system.

Since Aadhaar was launched, 270 million bank accounts have been opened in India.

A 2015 report from MasterCard found that India was one of the countries least ready to transition to a digital payment system.

Yet, 12 months later such a system was rolled out.

If the transition to a digital society can happen in India, where just 2% of transactions were non-cash a few years ago, it can happen anywhere.

India Stack could fast-track the move to digital payment systems across the developed world and mark the end of cash.

For astute investors, there are also huge investment opportunities in this revolution.

Investment Opportunities

A massive barrier to growth in India has been the number of non-performing loans in its banking system, which have risen fourfold since 2009.

It this sense, President Modi’s cash ban achieved something very important—it recapitalized India’s banks.

Since demonetization, over $80 billion has flowed into the banking system, and markets liked what they saw.

Since the beginning of 2017, the Nifty Bank Index, which represents the 12 biggest banks in India, is up over 30%. Telecommunications and technology sectors in India are also likely to see rapid growth in the midst of this transformation.

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