Aadhaar has made no mention of who will bear the cost of biometric POS readers and biometric ATMs. Will the bank customers be dumped with the huge bill for biometric ATMs?
On 12th September, a leading daily wrote about how ‘all new credit card machines and ATMs’ will be required to have an ‘Aadhaar authentication mechanism’ using biometrics. Remember, the massively expensive Aadhaar programme has no clearance from parliament. Yet, according to this report, RBI is “understood to be preparing such a directive to improve security and promote financial inclusion.”
Just a few weeks ago, a Moneylife Cover Story dealt with the steady increase in bank service charges. This new directive 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 (point of sale) 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). According to the newsreport, banks are expected to add around 200,000 POS machines and around 20,000 ATMs next year. We have always wondered about the rush to keep increasing the ATM network by each bank when they claim that technology costs are prohibitive. Now, it is clear that we, the customers, will be dumped with the bill for biometric ATMs.
One banker has already been quoted as saying that the cost will be so huge that they may have to divert funds earmarked for developing business to building this infrastructure to support the government’s programme. The big effort at financial inclusion, and the effort to force people to open bank accounts in rural areas, was apparently part of this long-term plan that was carefully kept out of the public domain.
There are two other issues that need to be taken into account. While Aadhaar-based authentication is touted as the panacea for financial inclusion of illiterate masses, it has not worked. Between 2004 and 2007, several banks launched biometric ATMs, with much fanfare, around the country. They did not work and had to be quietly discarded. Before embarking on another financial misadventure, the government needs to prove that there is better technology, which will work, especially since RBI’s internal committees have expressed several misgivings about the technology.
We also need some authentic data about whether fingerprints and Iris scans have worked successfully on rural folks with calloused hands and faded fingerprints which caused biometric ATMs to fail last time. While the UIDAI has long been pressuring RBI to order biometric ATMs, it has been strengthened with the appointment of Dr Raghuram Rajan as the RBI governor. In his first speech after assuming office, Dr Rajan said, "I particularly want to emphasise the use of the unique ID, Aadhaar, in building individual credit histories. This will be the foundation of a revolution in retail credit.”
Meanwhile, check out the statistics of how forced financial inclusion has worked so far. Deputy governor RBI, Dr KC Chakrabarty, said in a speech, “While over 150 million accounts were opened, only 30 million transactions have taken place up to December 2012.” This low acceptance of banks continues to plague the system and is affecting the financial viability of banks. The government hopes to change that by forcing un-banked people to get their subsidies and direct benefits through bank accounts.
It is an experiment fraught with a lot of teething problems. But, a government in a hurry to meet deadlines before the general elections in 2014 is likely to force unviable decisions on banks, with the cost burden born by existing customers.