SEATTLE, WA – MAY 04: A pedestrian walks past the Bill & Melinda Gates Foundation on May 4, 2021. … [+]
The Bill & Melinda Gates Foundation talks about the need for what it calls “digital public infrastructure” (DPI). The Foundation asserts that a strong IPR relies on three fundamental systems:identity, payments and data exchange– which together can make life easier in important ways. He highlights such infrastructure as a way to reduce poverty in emerging economies, but the truth is that developed economies also need digital public infrastructure, including the United States.
Where is our pile?
The International Monetary Fund (IMF) also talks about the need for a digital public infrastructure built from digital identity, payment system and a data exchange layer. They agree that an IPR has the potential to support economic transformation and support inclusive growth. The IMF strong points the particular example of India’s founding IPR, called the “India Stack”, and show how it has been harnessed to foster innovation and competition, boost financial inclusion and improve government revenue collection. India’s IPR contains powerful lessons for other countries going digital. transformation, particularly a design approach that focuses on shared building blocks and supports innovation across the ecosystem via APIs.
India fascinates me, because I find the whole theme of invention and innovation very interesting. Trying to understand how inventions are born, trying to learn from global examples of how inventions turn into lasting innovations (and why some of them don’t), trying to see which inventions might form a nexus of innovation for the next generation of financial services. . In payments, for example, many companies have built highly competitive businesses around the Unified Payments Interface (UPI), which Mastercard
MY
Here is a particularly interesting example. The “soundbox”. Paytm is India’s largest digital payments company and its soundbox processes UPI transactions at no cost to merchants, but charges them a monthly fee (or a one-time payment of $12 for using the device). But here’s the genius part: it emits a sound when a transaction is completed and is therefore increasingly common in markets to help reassure both parties (who may be illiterate) that payment will be received. Only four million stores in South Asia currently support card transactions, compared to more than double that number that have a sounding board from Paytm or a competitor. said a trader “I can now focus on other customers while the payment is being processed. I installed two soundboards… one from Paytm and the other from PhonePe.” It’s a superb example of sustainable innovation that solves local problems.
The sound of money.
So where are we in the US (or UK) with our digital public infrastructure? We don’t have a digital identity, we have a payment system (and even America now has instant payments), and we don’t have a data exchange layer yet. What would it take for us to reach Indian levels of innovation? Well, looking at this infrastructure from a fintech opportunity perspective, I think we can identify the infrastructure we need in pretty simple terms.
- Numeric identity. We need an interoperable digital identity (not a digitized identity) based on international standards and we need to be able to use it both online and offline. Banks have failed to do this, and neither the US nor the UK has a system comparable to Aadhar. We must therefore prioritize this component of infrastructure.
- Electronic payments. A combination of instant payments and central bank digital currency will ultimately enable retail payments at almost zero cost.
- Data exchange. This is where the transition from open banking to (eventually) open finance comes into play. Management consultants McKinsey say open financial data can create economic value benefiting financial institutions, individuals and small and medium-sized businesses. Here, the United States is on the cusp of transitioning to open banking and embarking on the open data path.
If these pillars are put in place, DPI will change lives. This seems like a bold statement, but it is important to understand that IPR is not just about financial services. As the Foundation points out, during a crisis such as COVID, countries with DPI have been able to provide rapid support to their citizens by providing emergency payments to those who need it most. For example, within weeks of the initial pandemic lockdown, India digitally transferred emergency payments to 300 million people, including 200 million low-income women.
Compare this to the UK, where of the £21 billion identified by the National Audit Office (NAO) as having been lost by the government, more than £7 billion was linked to schemes introduced during the pandemic, with small chance of the majority recovered. Similarly, between March 2020 and April 2022, American ne’er-do-wells pocketed (latest estimate) $46 billion in fraudulent unemployment insurance claims by filing claims in more than one state (in one case, 29 states paid out unemployment benefits to the same person), using social security numbers of deceased persons, claims on behalf of inmates, etc.
business case
Testifying before Congress last year, a Labor Department expert said there could have been “at least“$163 billion in unemployment benefits wrongly paid as well as “significant” benefits obtained by malicious actors. A watchdog found that $58 billion in the Economic Injury Disaster Loan program was paid to companies sharing the same addresses, phone numbers, bank accounts or other data as other applicants, leading to Should have been a wake-up call to say the least. The losses are staggering and are an order of magnitude greater than the cost of implementing a national IPR would have been! Why wait for the next disaster! Let’s start working now on the infrastructure needed for the new economy.