Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / How India's Digital Public Infrastructure Is Reshaping EM Finance
Transcript
- Lucas: You ever wonder why India's digital economy seems to be on a completely different trajectory from other emerging markets right now? Luna: All the time. We talk about China, Vietnam, Mexico — but India's fintech story feels like it skipped a stage. Lucas: It did. And the driver isn't really a single company or a single policy. It's something called Digital Public Infrastructure — DPI, for short. The World Bank calls it 'India Stack.' And it's changing how the entire financial system works. Luna: Right — Aadhaar, UPI, the account aggregator framework. But let's back up. What exactly is DPI, and why does it matter for someone investing in emerging markets? Lucas: Great question. So DPI is basically a set of open, interoperable digital systems that the government built — but didn't try to own exclusively. The most famous layer is Aadhaar, the biometric ID system. Over 1.3 billion Indians have one. That alone cut the cost of identity verification from something like 100 rupees per check to basically zero. Luna: And that unlocked everything else. Lucas: Exactly. UPI — Unified Payments Interface — rides on top of that. It's a real-time payment system that lets anyone with a smartphone send money to anyone else, instantly, for free. In 2026, UPI is processing over 8 billion transactions per month. That's more than Visa and Mastercard combined globally, by some measures. Luna: And it's not just peer to peer payments. Merchants accept UPI with a QR code. No card terminal needed. That brought millions of small shops into the formal economy. Lucas: Right. And then there's the account aggregator framework — that's the newest piece. It lets consumers give fintech apps read-only access to their bank accounts, tax filings, mutual funds — all with one consent. No more uploading PDFs or visiting a branch. Luna: So you get instant credit decisions, lower loan defaults, and a massive expansion of the addressable market for lenders. It's no wonder India's fintech funding was something like 12 billion dollars last year. Lucas: And you see the effects in the macro data. India's digital payments volume grew over 400 percent between 2019 and 2025. The IMF now projects India's GDP growth at 6.5 percent for fiscal year 2026 — the fastest among major economies. The INDA ETF, which tracks Indian equities, is up 2.5 percent in the last five days alone. Luna: But here's what I find interesting — other emerging markets are trying to copy this model. Mexico launched CoDi, its own digital payments system based on UPI. Nigeria has NIBSS Instant Payment. But none have really taken off the same way. Lucas: That's the key question. Why India? And I think the answer has three parts. First, Aadhaar gave everyone a digital identity. That's the foundational layer. Second, the government didn't build the apps — it built the rails. Private companies like PhonePe, Google Pay, and Paytm built the user interfaces. Third, the scale is just enormous. When you have 800 million internet users, network effects kick in hard. Luna: So for an investor, the play isn't necessarily 'buy Indian banks.' It's more about the fintech infrastructure players and the companies that can leverage those rails. Lucas: Absolutely. Think about it: you have firms that use account aggregator data to underwrite loans in seconds. You have insurance companies that can verify claims through Aadhaar. You have mutual fund platforms that onboard customers in two minutes. The cost of distribution in financial services has collapsed. Luna: And that's exactly the kind of productivity shift that shows up in GDP numbers over time. It's not just about more people having bank accounts — it's about capital moving faster and more efficiently. Lucas: Speaking of moving faster — if you find this kind of deep-dive into the mechanics of emerging markets valuable, and you want to help keep the show ad-free and independent, consider tossing a few bucks our way. You can support us at buy me a coffee dot com slash fexingo. It's a small gesture, but it honestly makes a difference in helping us spend the time to dig into topics like DPI. Luna: Yeah, and no pressure at all. We just love doing this, and listener support keeps it sustainable. Now, back to India — one of the most fascinating spillover effects is how DPI is reshaping the banking sector itself. Lucas: Yes. Traditional banks used to have a huge advantage: they owned the branch network. But with UPI and account aggregators, a digital-first bank can offer a better customer experience at a fraction of the cost. So we're seeing a wave of neobanks and niche lenders taking market share. Luna: And the incumbent banks are fighting back. ICICI and HDFC have poured billions into their own digital platforms. But it's hard to compete when the entire infrastructure is open and your startup rival can use the same rails. Lucas: That's the beauty of DPI — it's a public good. And the Indian government is now trying to export the model. They've signed MoUs with over 20 countries to help them build their own versions of India Stack. Papua New Guinea, Suriname, and several African nations are piloting Aadhaar-like ID systems. Luna: But copying the technology is one thing. Copying the regulatory environment is harder. India's central bank, the RBI, was willing to let private companies operate payment systems without a banking license. That's a big departure from most regulators. Lucas: True. And there are risks. Privacy concerns around Aadhaar have been litigated for years. The Supreme Court upheld it but put limits on private-sector use. And there's the risk of digital exclusion for the 200 million Indians who still don't have a smartphone. Luna: Still, from an investment perspective, the DPI story is one of the most durable structural trends in emerging markets. It's not about a single quarter's earnings — it's about a shift in how an economy of 1.4 billion people allocates capital. Lucas: And that's exactly the kind of thing that compounds over decades. So when you look at the INDA ETF's performance — up 2.5 percent this week — it's not just a risk-on bounce. It's a reflection of real productivity gains that make Indian companies more profitable over time. Luna: All right, let's round out with one concrete takeaway. For someone who wants to invest in this theme, what should they look at? Lucas: Three things. One, the fintech infrastructure plays — companies like Infosys that build UPI systems for banks, or the account aggregator licensees. Two, the consumer internet platforms that use DPI to acquire users cheaply — think Zomato, Nykaa, or the digital lenders. Three, the index itself, because the whole market benefits from the efficiency gains. Luna: And the risk to watch? Lucas: Regulatory tightening. If the RBI decides that data-sharing through account aggregators is too risky and pulls back, the whole model slows down. Also, geopolitical risk — India is increasingly caught between the US and China, and any disruption could spook foreign investors. Luna: But for now, it's one of the most exciting stories in emerging markets. And it's happening in plain sight. Lucas: Exactly. Next time you tap your phone to pay for chai at a street stall in Mumbai, just remember — you're using infrastructure that's redefining finance for a billion people.