Governance
Loopholes in Aadhaar-Enabled Payments
- 06 Oct 2021
- 3 min read
Why in News
A series of recent scams have exposed the vulnerabilities of the Aadhaar-enabled Payment System (AePS).
Key Points
- Aadhaar-enabled Payment System (AePS):
- AePS is a bank led model which allows online interoperable financial transactions at PoS (Point of Sale/Micro ATM) through the Business Correspondent (BC)/Bank Mitra of any bank using the Aadhaar authentication.
- This system adds another layer of security to financial transactions as bank details would no longer be required to be furnished while carrying out these transactions.
- It was taken up by the National Payments Corporation of India (NPCI) - a joint initiative of Reserve Bank of India (RBI) and Indian Banks’ Association (IBA).
- Advantages Associated with AePS:
- Decongesting Banks: Like other micro-ATM systems, it has helped to decongest banks. It can be particularly useful to migrant workers who have no ATM facility.
- Deepening Social Security: It will help in deepening social services after the proliferation of cash transfer schemes from governments to vulnerable citizens.
- Enabling Last-Mile Service: It will ease the payments which will be done at the doorstep instead of travelling long distances.
- Interoperable system ensures that the customer is not tied to one bank’s BC.
- Removing Middlemen: The middlemen who exploited the poor and illiterate would now be eliminated.
- Existing Loopholes:
- Fraudulent BC: Sometimes BC, leveraging the financial illiteracy of people, provides less money to the consumer but enters more money to be credited into the BC’s account.
- Manytimes, BCs deny receipts to poor people, if they demand one at all.
- A corrupt BC can even get away with asking a gullible customer to put her finger in the PoS machine under some pretext, without giving her any money.
- No accounting of Fraudulent Transactions: AePS has no record of the fraudulent BC, it only shows the transaction records.
- This makes poor people more vulnerable, who already are facing scarcity of funds.
- Systemic Issues: Failure in transactions owing to biometric mismatches, poor connectivity or weaker systems of certain banking partners, also affect the AePS.
- Fraudulent BC: Sometimes BC, leveraging the financial illiteracy of people, provides less money to the consumer but enters more money to be credited into the BC’s account.
Way Forward
- Providing financial literacy will help in reduction of cases of fraudulent BC.
- Roaming BCs should perhaps be banned, at least in states with low literacy levels.
- Better grievance redressal facilities must be made available to the victims of AePS fraud.
