As much as $2.8 trillion, or money almost equal to the GDP of India, was available to buy shares of Alibaba Jack Ma’s Ant Group last week, making the $34.4 billion IPO, which has now run into trouble with the Chinese regulators, hugely oversubscribed. Ant is a Chinese company that began life as an escrow account to facilitate transactions on Alipay in 2004. Sixteen years later it has morphed into a gigantic multi-tentacled entity that leverages its wallet information to make loans, sell mutual funds, insurance and wealth management products, serving over a billion people. It partners with over 100 banks and over 170 asset managers, and reported an operating margin of 34% in the first half of 2020. It is mostly as much a platform as Uber or AirBnB are, but it does have proprietary offerings across credit and insurance. As the name suggests, Ant’s business philosophy rests on no client or need being small enough to be ignored. This is as bottom of the pyramid as it gets. And the treasure is equal to the GDP of the fifth-largest country in the world.
The success of Ant in serving more than a billion Chinese people and then harvesting that value on the stock market raises the question—but what about India? Why do we not have similar entities that serve a very similar demographic that regular banking has ignored for decades? It is a market where small businesses are cash starved, where the central bank has to huff and puff for transmission of credit to go beyond the best-rated largest firms. The answer has to do partly with the Chinese state looking the other way while Ant sometimes walked the grey areas of regulation and partly to do with the “if we stay in the cave, we won’t get wet” attitude of the Reserve Bank of India (RBI).
Two reasons prevent an Ant-like entity that will stitch together the entire financial life of a person onto a screen from payments, cash flow, savings, investments, insurance to wealth management. One, KYC (know-your-client) is not a one-time, portable process. It is not portable across regulators, worse it must be repeated every time one opens a new bank account with another bank. The Securities and Exchange Board of India (Sebi) has solved this problem and KYC where one part of the securities system is valid for operating in another part of the market. RBI hides behind an archaic privacy law that prevents one bank from sharing KYC information with other banks or with other regulators when they want to check the details. Of course, the same rule does not prevent rampant cross-selling of third-party products sharing bank account details to the last rupee with sharp shooter salesmen. The CKYC (Central KYC, the brain child of an UPA- 2 FM), which hoped to do the job, is useless since it just brainlessly uploads data without verifying it. This is “garbage in and garbage out” as one regulator puts it.
Two, the various regulators have their own unique ways of looking at the market and this prevents a common interface where a person can look at her entire financial life and transact on one screen. Even PayTM, where Alibaba and Ant have a large stake, is unable to give the one-screen solution due to the regulatory mess that India finds itself in, where regulators fight on turf and mostly have ignored individual needs.
But the outlook is not fully bleak if we start connecting some of the dots that are riding on the existing public goods of Aadhaar and the national payments system. Two pieces that are work in progress could change the current logjam. One, four financial sector regulators have come together to put in place an entity called “account aggregator” which is essentially a “switch” that allows data to flow between the users of and the providers of data, after getting consent from the owner of data. Read herefor more on account aggregators. This will potentially allow the owners of data to leverage their digital exhaust for their own use. The onboarding of the GSTN data will possibly solve the credit flow to small enterprises. Two, a single repository of all financial assets is underway where mutual funds, stocks, copies of bank FD originals, insurance policies, National Pension System units, bonds will all sit. A user will be able to open one screen to look at her entire financial life. A small tweak in nomenclature from “depository” to “repository”, it seems, got the buy-in from some reluctant regulators.
All this is work in progress, but if this works, India will have built a public infrastructure on which firms can build value-adds—just as we have done with Aadhaar and payments. The power of an individual losing his financial identity rests with one firm in China. But in keeping with the democratic traditions, this power will not rest with one or two large firms in India, but will be the remit of a public institution. If things go according to plan, and mistakes will be made, in two to three years, India should have not just one Ant-like firm, but several. The success of Aadhaar and payments in creating digital public utilities give me hope that the next stage of digital utilities will indeed happen.
Monika Halan is consulting editor at Mint and writes on household finance, policy and regulation
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