How India Stack's aggregator economics can become a game-changer for market dynamics

While the societal impact of DPIs is widely recognised, this article sheds light on the often-overlooked aspect of how DPIs in India are restructuring core market dynamics via the paradigm of open network aggregation

Updated: Mar 28, 2024 10:04:24 AM UTC
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In the rapidly evolving digital landscape, India has positioned itself as a trailblazer in technological advancements, by implementing the India Stack—a revolutionary amalgamation of transformative technologies. At its core, the India Stack consists of Digital Public Infrastructures (DPIs) such as Aadhaar, Unified Payments Interface (UPI), Account Aggregator (AA), e-Sign, e-KYC, DigiLocker, and more. These DPIs interconnect seamlessly, forming the foundation of a dynamic digital framework known as the India Stack. This innovative ecosystem has not only reshaped societal functions but has also garnered international acclaim, especially in the recently concluded G20 2023 Summit in New Delhi.

DPIs are well-recognised for transforming market dynamics by aiding digital-only businesses through integrated digital identity, payments, and data. However, there's limited discussion on the notable impact of the open network aggregation system within DPIs on market dynamics.

Open Network Aggregation in the India Stack

Open network aggregators play a pivotal role within DPIs, creating a system where various digital services integrate and present their products on unified and open platforms. The primary aim is to foster interoperability, competition, and innovation, allowing different digital services to coexist harmoniously within a shared digital environment. The open network model, therefore, enables digital service providers in finance, healthcare, education, and other sectors to integrate and offer their services through a unified platform.

The Power of Open Networks: A Case Study of UPI

The UPI is a flagship example of open network aggregation within the India Stack. UPI serves as a universal link connecting various payment platforms, allowing users from different banks to transfer money seamlessly. In contrast to closed-loop systems in many developed countries, where transactions are limited to users within the same bank's platform, UPI facilitates efficient transactions across diverse platforms. It is basically a gateway to connect to different payment platforms.

India Stack's Unique Differentiator

The market economy has already long embraced the concept of aggregation across various industries to enhance efficiency. Examples include ride-hailing services like Ola and Uber, food delivery platforms such as Swiggy and Zomato, and accommodation finder AirBnB. Aggregators, acting as efficiency brokers, have been present in electricity markets, connecting consumers and suppliers, as well as media platforms, streamlining user experiences and content distribution.

Also Read: Driving financial inclusion through technology for India

The integration of open network characteristics sets India's DPI platforms apart from other aggregators, enabling users to move effortlessly between various platforms within a unified application. India Stack's open network aggregation not only curtails monopolistic tendencies but also streamlines connections between buyers and sellers in sectors like e-commerce and services. By leveraging it, matching consumer preferences with offerings becomes more effective, enabling improved resource allocation, heightened customer satisfaction, and increased market productivity.

Open Network Models: The ONDC Initiative

At the heart of the open network aggregation concept lies the Open Network for Digital Commerce (ONDC). ONDC exemplifies the ethos of democratising e-commerce by levelling the playing field for businesses of all sizes. Unlike closed-loop platforms like Amazon or Alibaba, ONDC operates on an "unbundled" model, where different entities within its network handle specific services, preventing any single entity from monopolising the market.

Democratising Access and Fostering Innovation

Additionally, closed-loop platforms use tactics like discounts or membership offers, for example, to entice buyers to stay within their ecosystem. However, in an open network, this strategy is less impactful, as the absence of such constraints fosters a more competitive and efficient market, where sellers compete based on value rather than relying on exclusive platform incentives. It promotes inclusivity by enabling small businesses to participate. Consequently, in these open networks, the benefit of businesses with economies of scale—where losses from discounts in one area can be offset by profits elsewhere—loses significance for sellers and allows smaller and newer businesses to compete with them more fairly.

Also Read: How Nandan Nilekani built India's digital public infrastructure

Enhanced information availability ensures that prices more accurately reflect the true value of assets, where goods are produced and sold at the lowest possible average cost.

Account Aggregator: Transforming the Financial Services Sector

The Account Aggregator system, a recent addition to India's digital infrastructure, is crucial in transforming the financial services sector. It allows individuals to securely share their financial data with chosen institutions through intermediaries known as account aggregators. This enhances the efficiency and personalisation of financial service delivery, establishing a highly interconnected and streamlined setting for a more dynamic and responsive financial services market.

Streamlining Access to Finance for MSMEs

The Open Credit Enablement Network (OCEN) initiative has significantly contributed to bridging the MSME finance gap in India by establishing open standards that facilitate and interconnect diverse aspects and stages of the lending value chain. This initiative empowers new players, particularly digital platforms, to assume essential roles in the lending process. OCEN, quite similar to ONDC for e-commerce, incorporates APIs for each stage of the lending lifecycle, involving key stakeholders such as Loan Service Providers, Technology Service Providers, lenders, and borrowers within its ecosystem.

Also Read: Unlocking opportunities with ONDC's all-inclusive robust open network

In trade financing, the Trade Receivables Discounting System (TReDS) platform, operated by Receivables Exchange of India Limited (RXIL), efficiently manages trade receivables financing for MSMEs. TReDS, acting as a digital marketplace, connects MSMEs, financiers, and buyers, efficiently and transparently addressing trade financing challenges. TReDS ensures working capital availability for MSMEs, where they can find financiers for immediately discounted payments and support cash flow in an ecosystem where sales are mainly made on credit. Simultaneously, these financiers accept payment later at interest from buyers, who usually opt for deferred payments to MSMEs, thus optimising the overall trade financing process.

Supply Chain Efficiency

DPIs can also streamline supply chain operations by facilitating seamless communication and collaboration between stakeholders, suppliers, manufacturers, distributors, and retailers. By digitising supply chain processes and leveraging technologies like blockchain, DPIs enhance visibility, traceability, and efficiency across the entire supply chain, reducing costs and improving responsiveness to market demand fluctuations.

Dynamic Pricing and Market Adaptability

The digital infrastructure facilitates dynamic pricing models, allowing platforms to adjust prices based on real-time demand and supply data, optimising resource allocation and fostering a more responsive and efficient market. By harnessing these vast data streams, DPIs offer insights into market trends and consumer behaviour, empowering businesses to optimise product development, marketing strategies, and resource allocation. Additionally, stakeholders get real-time access to transaction records, reducing information asymmetry, fostering trust, and enabling regulators to monitor market activities effectively.

Embracing the Open Network Paradigm

In conclusion, the aggregator economics of the India Stack represents a transformative force, reshaping market dynamics through its open network aggregation model. The India Stack is at the forefront of a digital revolution with far-reaching implications for economies worldwide. As India continues to harness the potential of aggregator economics, it stands poised as a global leader in shaping the future of market dynamics.

The writer is policy professional with experience working with Government, NGOs and Start-ups in range of sectors. Presently he is working as a Consultant in Department of Economic Affairs on G20 and International Economic Relations. 

The thoughts and opinions shared here are of the author.

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