India is poised to make a transformational move through a combination of biometrics, Aadhaar and mobiles, devolving the power to the hands of the citizen where it truly belongs. Governance, security, payments and the economy are never going to be the same again,
reports Team INCLUSION
‘Biometrics and New Economy’ is looked at from the prism of challenges and opportunities that lie ahead in accomplishing a transparent, efficient and speedy payment delivery system leveraging biometric technologies, the Aadhaar identification platform and mobiles. Stakeholders from government agencies and the corporate sector stress that the possibilities are immense for minimising cash transactions in the economy, given that the Pradhan Mantri Jan Dhan Yojana (PMJDY) has already charted the world’s blockbuster financial inclusion effort, the biometrics-based Aadhaar identification platform has shaped the world’s largest citizen database and India is projected to become the world’s second largest smartphone market by next year.
The payment sector’s business model needs to evolve further, interoperability has to improve and the banking regulator, in tandem with these two, must add momentum towards a new economy by reducing the Merchant Discount Rate (MDR), even though it is noted that nowhere in the world a zero MDR is in play.
It is argued that advances in computer and biometric technologies, increase of high-speed networks, growth in cloud computing and mobile innovation now allow electronic tagging of all money transactions in the system, irrespective of its origin, either from government or private source. Algorithms are becoming faster, more precise and more powerful. Innovations in the payments sector have led to the emergence of electronic payment service providers able to facilitate formal payments even in the absence of accounts, such as over-the-counter payments, mobile money payments and payment cards. For the common man, the unique identification number or Aadhaar that uses advanced biometrics has already delivered rich dividends. Today, it has acquired gravity as the government moves to deliver all its financial services to the people of India through Aadhaar Enabled Payment System (AEPS) and Aadhaar Payment Bridge System (APBS).
The AEPS and APBS managed by the National Payments Corporation of India (NPCI) guarantees simultaneous online authentication of transaction—user, device and operator—that takes place in real time. It’s hard to escape the electronic audit trail and end-to-end visibility. APS is location agnostic and geared to address low-value micropayments in remote locations. It secures interoperability at the retail device level, without mandating banks’ interoperability, while giving greater service provider choices to the customer. Above all, APS is cost-effective, compared to other cash-out modes like money order and mobile wallets. Unique authentication reduces operational risks and brings in efficiency and transparency into the system.
A P Hota, MD & CEO, NPCI, observed that a cash society is injurious to the economy because it encourages black money, corruption and leakages. He argued that the MDR has to be reduced to reach the goal of a cashless society, but contended that the Reserve Bank of India (RBI) is taking steps to reduce the MDR further. Speaking about AEPS, he said despite all the achievements and encouraging regulatory developments, it still faces three challenges. One is the seeding of Aadhaar to bank accounts and government departments. “Aadhaar, coupled with the bank account number and IFSC code, is now a unique financial address, which can’t be duplicated. The problem here is that Aadhaar has to be seeded with both bank accounts and government departments so that the AEPS and APBS can execute payments. At the same time, more services are being added to the system. By the government’s own reckoning, the saving of using AEPS for government-to-citizen financial services delivery is to the tune of Rs 30,000 crore. Therefore, the two-way seeding has to be stepped up,” he observed, adding that the NPCI has started an ‘Aadhaar Look Up Service’ to accelerate the process.
He pointed out the second issue is authentication. “Here the challenge is interoperability, making the huge network of business correspondents interoperable and enable these correspondents validate the Aadhaar number. The third challenge is the demographic use, which is to make Aadhaar an electronic KYC,” he said, adding that steps are being taken to resolve all three challenges on a war footing.
The Aadhaar-based biometric authentication can be verified and authenticated in an online, cost-effective manner, which is sinewed to eliminate duplicate and fake identities at the point of delivery. Foolproof identity authentication makes sure that people get what they are entitled to get and they can confirm the transaction, weeding out invalid or downright bogus beneficiaries and chances of diversion, pilferage and leaks. This increases accountability and transparency in the system of delivery of benefits, as the authentication is verifiable all down the line.
M V S Rami Reddy, Deputy Director General, UIDAI Hyderabad, who supervises the implementation of the project in four states and one union territory, including Andhra Pradesh and Telangana, echoed this argument. He said the Aadhaar authentication platform is state-of-the-art and one of the best in the world. Using Aadhaar, the UIDAI has now built a payment ecosystem comprising more than 700 banks and financial institutions. “As of now, we have issued Aadhaar cards to more than 105 crore people, out of total 120 crore population, which is about 83 per cent. The Aadhaar has now become the financial address of the citizen.”
He said the government’s ambitious JAM (Jan Dhan, Aadhaar, Mobiles) trinity, which specifies the new ecosystem to eliminate cash dealings between the government and the citizen in the transfer of social security benefits and subsidies, will bring about a paradigm shift in the country’s economic landscape in the long run—in service delivery, in achieving higher degrees of efficiency, low cost operations as well as precisely targeting the beneficiaries. If the JAM trinity can be seamlessly linked and all subsidies rolled into one or a few monthly transfers, real progress in terms of direct income support to the poor may finally be possible. JAM is bound to be the backbone of efforts to transfer subsidies and benefits of other social welfare schemes, with the goal of plugging leakages and ensuring that full benefits reach the targeted population.
Porush Singh, Division President–South Asia, Country Corporate Officer, India, MasterCard, said the Jan Dhan has done a fabulous job of distributing the payment mechanism to all consumers. The next step is getting it to use it and use it regularly. “That is going to happen only if, first, all payment sector players join their hands together to create a common platform and fuel innovation to drive it. Second, we must enhance the use of biometrics across multiple things. For instance, we have a system called Selfie Pay: safe, secure payments using your own face. So, the technology exists, the distribution has happened and the government and private sector now need to work together to see what is successfully working in other countries and what needs to be done specifically for India. Let’s do our learning globally, create assets locally, see where we are and let’s see how we drive innovation for our own use,” he argued.
Singh said, nowhere in the world has zero-MDR system worked because there has to be money in the value chain. “However, what I do believe is that interoperability is going to drive the maximum volumes and no single player can ever steer an economy’s cashless drive all alone. How should we create an interoperable platform that provides highest safety and security standards for the consumer, should occupy our minds,” he added.
Anurag Gupta, CEO, A Little World, observed that the business model built around the AEPS system is seriously flawed. Aadhaar-to-account is not available today and vice versa. Under the AEPS, a cashless payment is exactly at par with a cash transaction. In the AEPS transaction set, the cash withdrawal and the cash deposit are priced at parity, which is understandable and fair. “But cashless transactions are also priced at exactly the same level. This is absolutely counterproductive. Policy has to discourage cash transactions and encourage cashless transactions. We have been incentivising cash transactions and at the same time penalising merchants for cashless transactions. This is unfair. We need to make cashless transactions free of cost. Otherwise, the paradigm will not change. The business model is the single largest impediment towards moving to cashless society. The order has to change and this is where NPCI has to take a call.”
Sachin Vishvakarma, CEO, Jabalpur City Transport Services Ltd, explained the merits of the biometrics-based cashless fare collection system implemented in Jabalpur’s city transport system. He said Jabalpur will soon become the first Indian city where a full-blown automated fare collection is implemented in all its bus services. “Our experience shows that the Aadhaar identification platform and AEPS can be very effectively put to build smart cities,” he added.
Cashless society is a great idea, where India, an information technology powerhouse, should break a new ground ahead of other emerging nations. It is hoped that the regulators too will march in step with technological advances to herald a cashless New India.
Inclusion is the first magazine dedicated to exploring issues at the intersection of development agendas and digital, financial and social inclusion. The magazine makes complex policy analyses accessible for a diverse audience of policymakers, administrators, civil society and academicians. Grassroots-focused, outcome-oriented analysis is the cornerstone of the work done at Inclusion.