How loopholes in Aadhaar-enabled payments are putting poor people at risk of being swindled

Synopsis: Given the need for financial inclusion, resolving the issue in the AePS model is vital.


The government of India launched Aadhaar enabled Payment System which is coupled with the Business correspondent model. It was supposed to revitalize financial inclusion in India. However, it faces many challenges.

What is the Aadhaar enabled Payment System (AePS)?

It is a bank-led model which allows online interoperable financial inclusion transactions at Point of Sale (Micro ATM) through the Business correspondent (BC) (informal bank agent) of any bank using the Aadhaar authentication.

For example, if a person wants to withdraw Rs500 from a bank account using BC, he/she needs to provide the bank name and undergo  Aadhaar-based biometric authentication (ABBA). BC will then provide the requested amount, and BC’s own account will be credited with the same amount. For this,  the bank account should be linked with Aadhar.

Benefit: Like other micro-ATM systems, it has helped in decongesting banks. It can be particularly useful for migrant workers who have no ATM facility.

What are the issues associated with AePS?

AePS comes with serious risks of being cheated, especially those who lack clarity of its working. These risks are increased when banks refuse to disburse small amounts to their customers and send them to BCs instead. Some of the risks are:

Financial Fraud by BC: There are chances that some corrupt BCs will enter the high amount in PoS and gave the beneficiary the lesser amount. However, this can be ignored if people demand a receipt. But it is visible in many cases that BCs often denies receipts to poor people.

There are also many instances where Corrupt BCs duped customers by simply asking them to put their finger on the scanner. After which, BCs quietly withdrew the amount without telling the customer.

It is unfortunate that most of such frauds remain unresolved today. In some cases, the police are reluctant to file FIRs. Even if the BC can be traced, it is easy for him to claim that he did disburse cash as per records — it is his word against the victim.

Read moreFailure Of Aadhar Based Payment System
How these issues can be eliminated from AePS?

Permanent Entry: BCs could be required to make manual if not digital entries into printed customer passbooks. That would act as a permanent, verifiable receipt that cannot be denied to the customer so easily (a blank entry would be incriminating).

Ban: The government can ban roaming BCs in states with low literacy levels, so they cannot take advantage of poor and illiterate people.

Services: Better Grievance Redressal facilities should be made available to the victims of AePS fraud. Also, the SMS alert system should be there if the person’s bank account is linked with a phone number

Source: This post is based on the article “How loopholes in Aadhaar-enabled payments are putting poor people at risk of being swindled” published in Indian Express on 5th October 2021.

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