DigiLocker is a secure, cloud-based platform for storage, issuance, and verification of documents in a digital way. Consumers and service providers, including financial service providers, face challenges including administrative overheads caused by the physical documents and verifying the authenticity of documents. The DigiLocker system is a response to these challenges.
Consistent with the above, they have the following objectives:
Enable e-signing of documents and make them available electronically and online
Minimize the use of physical documents
Ensure the authenticity of e-documents, thereby eliminating usage of fake documents
Secure access to government-issued documents through a web portal and mobile application for residents
Reduce administrative overhead of entities consuming these documents on account of legal and regulatory compliance
To borrow from the language of platforms, DigiLocker is a three-sided platform comprising of subscribers, issuers, and requestors.* Public policy regarding the DigiLocker is to license “Digital Locker Service Providers” (DLSPs) to manage this 3-sided ecosystem. At present, the DigiLocker ecosystem has:
(approximately) 20 million registered subscribers
114 Issuer Organizations
34 Requestor Organizations
With the proliferation of smart-phones and falling data costs, DigiLockers coupled with e-signature offer the promise of facilitating financial inclusion by reducing CAC and compressing TATs. However, as the above statistics reflect, the DigiLocker system has not proliferated as much as it should have. This appears to be on account of key access barriers. Specifically, DigiLocker has access barriers on the “requestor” side of the platform. So there is also a case for lowering the steep eligibility requirements for digital locker service providers. These two changes to the DigiLocker architecture can catalyze competition and facilitate onboarding on all three elements of the platform.
Bottlenecks in the DigiLocker Ecosystem
The Requestors have to be mandatorily registered as a pre-condition. There is an 8-10 field form that requires a potential requestor to share details including an explanation about how partnering with DigiLocker will help it. From a review of the sign-up page, it appears that this form is the beginning of the onboarding process; the integration process requires 15 days in the best-case scenario.
Borrowing from the playbook of multi-sided platforms, one strategy to scale and proliferate the use of DigiLocker is to facilitate ease of access by removing costs for the consumers of the platform that are most critical.** For example, card-issuing banks and platforms like American Express offer rewards to induce frequency. Thus there is a case for removing the mandatory registration requirement altogether at least for regulated financial services participants like banks, NBFCs, and insurance companies. These subgroups of regulated requestors have significant gains from accessing a digital database of documents for compliance, and to leverage the DigiLocker ecosystem better, removing bottlenecks for them to access these repositories is a low-hanging fruit so to speak.
Secondly, entry barriers for securing a license to offer digital locker services appear to be steep. At present, an applicant has to show a net worth of 500 million and paid-up capital of INR 50 million at a minimum. In addition, one has to submit a performance bond of INR 20 million. These requirements are stricter when compared to licensing conditions for other digital repositories in financial markets. For example, the eligibility for Information Utilities under the Indian Bankruptcy Code does not include the INR 50 million paid-up capital requirement.
1. Requestor-Side Access
The requestors have significant gains to be earned from scaling of DigiLocker platform. As pointed out above, easing access barriers presently constraining banks, NBFCs, and insurance companies from coming onboard by enabling fee-based open access for them and making the registration less prescriptive can create a “thicker” requestor-side. At steady state, just enabling this gets banks, NBFCs, and other FIs access to:
365 million PAN records for verification (income tax departments, Govt. of India/states is an onboarded issuer)
681 million driving licenses and vehicle registration certificates (Ministry of Road Transport & Highways is an onboarded issuer)
Over 1 billion digital Aadhaars (UIDAI is an onboarded issuer)
The experience can be further enhanced for SMEs by onboarding GSTN as an issuer on the DigiLocker platform so the invoices can be pulled/pushed into the DigiLocker by user/GSTN for the requestors to access.
Once enabled, FIs and banks can directly/indirectly nudge the users on the platform. Cross-group network effects will also catalyze user onboarding on DigiLocker. This is consistent with the strategy followed by multi-sided platforms to solve the chicken-and-egg problem they face. Once they are on the platform, the user can upload and e-sign documents relevant to due diligence of the lenders including PDF bank statements, GST invoices, Form 26 AS, and other ITR documents. Hence, the DigiLocker acts as an aggregator of all relevant documents that a regulated lender can access in a consolidated manner. Furthermore, to the extent the user has e-signed the documents, fraud-risk is mitigated.
2. DigiLocker Service Provider Entry Barriers
The paid-up capital requirement of INR 50 million can be relaxed to facilitate competition in the DLSP services space and innovative onboarding strategies. Furthermore, the performance bond can be made contingent on the risk assessed through a technology audit of the applicant.
“subscriber” is subscriber to a Digital Locker; “Issuer” is any entity issuing digitally signed or equivalently authenticated electronic records to the subscriber; “Requester” is any entity requesting access to subscriber’s digitally signed or equivalently authenticated electronic records.
Uber for example offered high-powered incentives to drivers on its platform when it initially arrived in India.
RupeePower is a leading CreditTech company in India. RupeePower’s platform “CreditOn” is a comprehensive digital-first product suite that enables banks & lending companies to transform themselves into state-of-the-art digital lending enterprises at scale. CreditOn has created success across banks & lending companies with names like State Bank of India, Kotak Mahindra Bank, Standard Chartered, RBL Bank, YES Bank, Fullerton India, AU Small Finance Bank, and Edelweiss. The platform has enabled these lenders to disburse over USD 4 billion in retail and SME credit to roughly 2 million customers over the last four years.