The Centre's overarching agenda to make Aadhaar a success by forcing people to withdraw money from ATMs under a diktat from RBI is being opposed by bankers due to huge cost involved. Several consumer activists and NGO, including Moneylife Foundation also sent a memorandum to RBI governor on the same issue
Leading banks are set to oppose the Reserve Bank of India (RBI) diktat that all new automated teller machines (ATMs) and point of sale (POS) machines should be tailored to accept Aadhaar — one of the widely publicised ventures aimed at winning votes and changing the lives of millions, reports Economic Times (ET).
Even several activists, consumer and non-government organisations (NGOs) as well as Rajeev Chandrasekhar, an independent member of the Rajya Sabha also had opposed the RBI move over Aadhaar-enabled ATMs and PoS citing the huge cost involved.
According to the ET report, last week, senior bankers went into a huddle to list out the pitfalls of the central bank's directive, which they think is being rushed through without understanding the implications for banks.
"Why should we spend hundreds of crores in changing the network when the same thing can be achieved with existing technology?" a senior banker was quoted as saying in the report. On 3rd December, the payments committee under the banking lobby, Indian Banks' Association, met to discuss the matter which will soon be taken up with the regulator, the report says.
The ET, quoting a panel member, said, "While RBI has said that banks may issue cards without the Aadhaar feature, the POS machines and ATMs have to be mandatorily Aadhaar-enabled. Now, if banks don't issue credit or debit cards that are enabled for Aadhaar acceptance, why should we procure new types of ATMs and POS for a handful of customers who prefer biometric readers for transactions?"
Some of the bankers and service providers ET spoke to say their entire network has to be overhauled for the purpose. "Data on the magnetic strip of a credit/ debit card is transmitted through telephone lines. Biometric data will need high-speed connections and the bandwidth and capability has to be raised. Besides, in biometric mode, response time and rejects may be higher and transactions could take longer," a service provider told the financial daily.
These were the points that came up when Moneylife Foundation hosted a round table in September 2013 with leading organisations such as All India Bank Employees Association (AIBEA), All India Bank Depositors Association (AIBDA), Council for Fair Business Practices (CFBP), V Citizens Action Network (V-CAN), Consumer Education and Research Centre, Ahmedabad 9CERC), India Against Corruption (IAC), Forum for Fast Justice (FFJ), Forum of Free Enterprise (FFE), Nagrik Chetana Manch (NCM), All India Business Council (AIBC) and Women Graduates Union, Mumbai (WGU), as well as concerned citizens to discuss the issue.
The group drafted a memorandum that has been sent to the RBI governor Dr Raghuram Rajan
The key issue was: Who will bear the huge technology cost that would be involved. The activists feared that the banking system was being used by the UIDAI (Unique Identification Authority of India) to create nationwide infrastructure of biometric readers and scanners at the cost of bank consumers. Further, UIDAI plans to charge a fee for each Aadhaar authentication, which would also have to be borne by consumers.
Among the issues raised at the discussion was the fact that biometric-enabled ATMs had been launched with much fanfare between 2004 and 2007 but were an unmitigated disaster. Most participants felt that there ought to be a pilot project to justify the technology, safety as well as the bandwidth required for the UIDAI authentication, before such a big cost burden was imposed on the banking system.
Media reports say that banks plan to add over 200,000 point of sale (POS) machines and around 20,000 ATM machines in the near future. In addition, the vast existing ATM network will also have to be made Aadhaar-enabled. This entails huge cost and, according to some experts, will force banks to divert resources from other projects. Banks are being lured to invest in the technology on the promise that direct benefits and subsidies will be routed through the banking system. But it is unclear whether the distribution of subsidies will earn any revenue for banks or only burden them with costs, which will be transferred to other customers.
The memorandum said, “Public policy towards financial inclusion has to be devised diligently, keeping the stakes of the customers in mind and not coerce customers into accepting an unnecessary identification tool like the biometric system. It should ensure safe and secure transactions and aim at lowering banking costs. Consumers expect the RBI to follow the principles of good governance, transparency and accountability to the consumers.” An interesting aspect of the round table discussion was that consumer groups had the support of the largest bank employee unions, which also plans to oppose the huge expenditure plans from the inside.
Rajeev Chandrasekhar, who is also a member of the Standing Committee on Finance, had requested Prime Minister Manmohan Singh to relook at the RBI's proposal on Aadhaar authenticated biometric ATMs. In the letter sent to the PM, finance minister P Chidambaram and chairman of Standing Committee on Finance, Mr Chandrasekhar wrote, "Public policy towards financial inclusion should be devised intelligently with objective of lower banking costs and increased access for consumers and not using ill-conceived, brute force methods involving significant additional spending and increase in costs to consumers and please make no mistake, these costs will be passed on by banks to consumers."
Moneylife has been pointing out that this new directive (from RBI) will involve additional expenses, which bank depositors will end up bearing under the guise of technology costs. So far, Aadhaar has made no mention of who will bear the cost of biometric POS readers (according to a senior banker, they will cost Rs8,000 each) and biometric ATMs (Rs4 lakh for the machine plus installation, maintenance, electricity, etc).
Last month, the RBI advised banks to choose either EMV chip and PIN or Aadhaar’s biometric validation as additional factor for authentication and securing the card present payment infrastructure. However, several mainstream media reported that RBI has asked banks to adopt Aadhaar authentication only.
However, the RBI has advised banks to keep their new card present infrastructure enabled to use both EMV chip and PIN and Aadhaar (biometric validation) acceptance. It may be noted that EMV cards are 'smart' cards that have an embedded chip while PIN authentication involves the card-holder to punch in a secret code on the card-swiping machine, for each transaction.
Interestingly, about 90% of the existing POS terminals in the country, managed by 21 acquirers (among them Axis Bank, HDFC Bank and ICICI Bank), can accept EMV chip cards and PIN. However, following RBI directive banks will have to scrap the whole infrastructure and buy new one with biometric readers, which costs a bomb.
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