UIDAI’s Aadhaar national identity project was instituted on the principle of inclusion, an attempt to bring all citizens under a single fold. The project with its massive repository of biometric, residential and banking data of Indian citizens can be leveraged across diverse sectors in order to transform the way we function as a nation. In the payment and banking sector alone Aadhaar authentication can be used in multiple ways in order to bring about financial inclusion and simplify the way we transact today.
As part of the endeavour towards a cashless, digital economy, UIDAI in collaboration with NPCI, RBI and other banks has introduced several initiatives to provide easy and efficient payment solutions to businesses and individuals alike. The payment solutions supported through the Aadhaar authentication system are as follows:
Aadhaar Enabled Payment System (AEPS)
AEPS or the Aadhaar Enabled Payment System was built with a vision to extend banking and financial services to the unbanked pockets of the country, through a system called Micro ATM. Micro ATMs are essentially a bank led model where banking or business correspondents are authorised to provide basic, essential banking services to people through a simple machine that authenticates digital transactions via the Aadhaar identity system. The Micro ATM machine is identical to POS hardware, but comes with an in-built, keypad, printer and scanner to allow for authentication through biometric information (fingerprint). A simple process of entering Aadhaar number, selecting the Aadhaar linked bank account and authentication via fingerprint is all it takes to process transactions through the AEPS Micro ATMs. The basic range of services enabled through AEPS are cash deposit, cash withdrawal, payments, fund transfer, and balance enquiry. And, since the machine supports payments, it can prove to be very useful even at merchant locations and kirana stores for making easy, cashless payments.
Aadhar Pay App
The Aadhaar Pay App is a system that is specially designed for merchants and enables digital transactions through the Aadhaar identity system, via a simple smartphone app with no additional need for any hardware or POS equipment; it is essentially the merchant version of AEPS that functions without a POS device. Since the whole Aadhaar payment system is authenticated via biometrics, the app also functions only in conjunction with a fingerprint scanner. In case the merchant’s smartphone does not come pre-enabled with a fingerprint scanner, an external scanner, that is STQC (Standardisation Testing and Quality Certification Directorate) certified can be attached to the smartphone in order to process payments. In order to leverage the solution, merchants have to register with a bank (that supports Aadhaar Pay) by submitting e-KYC details and downloading the app through the link sent to their smartphones. Once Aadhaar Pay app installation is complete, merchants can easily start accepting payments.
The workflow for this simple yet effective payment system is as follows:
- Merchant installs the Aadhaar Pay app on his/her smartphone (after completing an e-KYC process with the bank) and ensures that a biometric scanner is attached to it.
- Customer enters the his/her 12- digit Aadhaar number, after which the app will fetch the linked bank accounts and the customer will need to select the bank account from which the payment is to be made (in case there are many bank accounts linked to the Aadhaar account)
- Customer authenticates payment by scanning his/her fingerprint and successfully completes the transaction, and the merchant receives the payment directly into his/her bank account.
The Aadhaar Pay app brings in an era where digital, cash-less transactions can be made without the need for even debit or credit cards, something that was never imagined to be possible before. From the cost and convenience standpoint, the Aadhaar Pay app removes the need investing in expensive POS equipment, completing all transactional requirements with just a single app. Registered Aadhaar identities along with the app on the merchant phone is all that is needed to process digital payments via Aadhaar, thus removing the multiple layers of friction that merchants and customers otherwise encounter.
Aadhaar Payment Bridge (APB)
Aadhaar Payment Bridge or APB is a centralised system that uses Aadhaar credentials to transfer welfare benefits from government agencies to individuals via Aadhaar linked bank accounts. APB essentially links government agencies and banks on one side and beneficiary banks on the other side in order to ensure direct transfer of benefits to people. The channel essentially eliminates middlemen, corruption and lengthy paperwork that is generally involved in welfare schemes; making it a channel that ensures that benefits are only availed by the deserving. APB is one of the main channels to make disbursements for Direct Benefit Transfer (DBT) today and according to PTI1, the disbursements via APB as of April 2017 were 43%, a steep jump from April 2016, where the disbursements stood at 21.57% of the total disbursements.
APB is proving to be more useful now, since social security programs have moved from in-kind to in-cash subsidies.
How Aadhaar is transforming payments in India
The entire Aadhaar platform is built to connect all segments of the society under a unified, identity system and payments is one of the biggest areas of impact that Aadhaar will bring about. Through the various payment solutions, Aadhaar has the power to transform the way we transact. Simple, yet powerful and transparent Aadhaar based payment solutions can prove to be great way to bring the remote, financially excluded segments of the country under the realm of digitized banking and financial services. Aadhaar based payment solutions are inherently easy-to-use and are built in such a way that it reduces the banking costs of providing financial services. For instance, AEPS through the Micro ATM system allows people in remote areas to access to banking services without the need to set up a full-fledged branch. Similarly, the Aadhaar Pay app removes the need for POS equipment at stores and merchant locations.
In addition, the sheer size of the Aadhar program with more than 88% (1.12 billion) of India2 registered under the program provides a solid base to build and scale solutions that can have widespread impact. Over 40 crore Aadhaar cards have been linked to bank accounts and this number is only going to grow, paving the way for digital, less-cash India.
- Prasanta Sahu. (May 23rd, 2017). “Aadhaar Payment Bridge payments jump 113% to Rs 4,209 cr in April”. [Financial Express]. Available at: http://www.financialexpress.com/economy/aadhaar-payment-bridge-payments-jump-113-to-rs-4209-cr-in-april/680895/
- Alison Saldhana. (March 30th, 2017). “1.12 billion Indians have Aadhaar numbers by now. Here’s how Modi government plans to sign up the rest”. [The Economic Times]. Available at: http://economictimes.indiatimes.com/news/politics-and-nation/1-12-billion-indians-have-aadhaar-numbers-by-now-heres-how-modi-government-plans-to-sign-up-the-rest/articleshow/57914441.cms