Failure Of Aadhar Based Payment System
Source – Livemint
Syllabus – GS Paper 2 – E-governance- applications, models, successes, limitations, and potential
Context – Rising transaction failure in AePS (Aadhaar Enabled Payment System) amidst COVID lockdown.
What is AePS
AePS is a bank led model which allows online interoperable financial inclusion transaction at Point of Sale (MicroATM) through the Business correspondent of any bank using the Aadhaar authentication.
The only inputs required for a customer to do a transaction under this scenario are:-
- IIN (Identifying the Bank to which the customer is associated)
- Aadhaar Number
- Fingerprint captured during their enrollment
Data – From 172 million transactions in March, 2020 steep rise in AePS use in April, 2020 – 403 Million transactions
Significance of increased transactions:
- Widespread use of digital payment methods across nation.
- Successful cash transfer by government amid lockdown.
- Promotes financial inclusion by harnessing digital technology.
Challenge associated with AePS transactions– Average rate of failure of transactions is 39% which has following implications-
- Citizens, especially, poor sections are deprived of cash and thusreduced demandin rural India.
- Accounts still debited without cash being disbursed– finance institutions take 14-15 days to return the money or in some cases are not even returned.
- Trust- Deficit among citizens-Repeated failures and loss of money if not returned, causes trust deficit among citizens thus promote informal financial systems.
Causes of Failure in AePS transactions:
- In many cases, bank accounts are not directly linked to Aadhaar
- Insufficient or frozen funds in account
- Poor connectivity due to lack of infrastructure needed
- Authentication issues due to mismatches
- Timeout of transaction due to no response from NPCI (National Payments Corporation of India)switch
- Financial institutions need to upgrade their server capacity.
- Banking Correspondents–
- Can provide account balance details to customer before transaction is made.
- Facilitate simplified redressal in case of failure of transaction.
- Forbiometric authentication– Consumer to be given option of re-recoding fingerprint after conducting a thorough, transparent and account audit of failed biometric.
Way Forward – Nandan Nilekani and Rattan Watal Committees on digital payment has promoted use of AePS for financial inclusion by bringing necessary reforms.