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Who pays the price for biometric scan ATMs?

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.

User

COMMENTS

Vidya pani

3 years ago

The public should no longer be fooled by the biometrics industry with false security claims. Biometrics is fundamentally a technology designed for oppression and control, not for securing everyday device access.

Deepak Gupta

3 years ago

While I have concerns about data privacy for biometrics data at the UIDAI in absence of any strong law guaranteeing citizen's right to privacy, I find this article misleading.

What is point of quoting the price of POS terminals and ATMs and the running expenses (electricity etc.)? Banks are expanding ATM networks anyway. For all new ATMS and POS to be UID compliant, the real cost is only the extra cost for the biometric functionality over and above a normal ATM. If it costs an extra 5-8,000 for fingerprint and iris scanners features in a new ATM, it is hardly 1-2% of the cost. Once you add the overall running cost over the lifetime of the ATM, this additional purchase cost boils down to almost nothing.

ATMs have added lot of functionality in the past, while reducing prices as technology became cheaper over time. And the features being added this time are purely electronic - with no moving parts.

On top of this, UID could very well accelerate the deployment of Indian Rupay payment network - this system has much lower transaction costs than Visa and MasterCard.

The bankers have a habit of cribbing, and lobbing for rules that let them make more money. Have you asked a single banker what is the additional cost of UID functionality in ATMs and POS, compared to the costs of the bad decisions they have made on the lending that are now turning into bad loans?

REPLY

Mohit

In Reply to Deepak Gupta 3 years ago

1. Misleading? After all, even you don't know about the real cost. If that is so, what is your point really?
2. ATMs have added functionality....cheaper over time." Cheaper for whom? For customers banking is becoming more and more expensive. Its your assumption that is flawed.
3. "UID could very well..." A pipedream. The same forces which are milking UID will ensure Rupay does not take off to replace Visa and Master. Since when cheaper and better won in India? Its all a matter of vested interests.
4. Bankers don't crib. They get even and more. Wake up. They have their way because customers don't complain enough. Look at the profits of private banks
5. Its not either/or as regards NPAs and UID functionality. Cost is cost and they are ultimately passed on to the users.
6. Finally, WHO WILL USE BIOMETRIC ATMS? Do you know whether banks want them as customers?
It seems you don't want to see the issues here. Why?

Rakesh

In Reply to Deepak Gupta 3 years ago

Dear Mr Gupta: Are you in the business of selling biometric ATMs?

Sucheta Dalal

In Reply to Deepak Gupta 3 years ago

It is easy to raise questions when you dont have to do any work yourself. WE have not only asked questions to banks, we have taken up the issue of costs very strongly with the Reserve Bank of India and also discussed it with the Banking Codes & Standards Council of India. Make the effort to read our cover stories and our open house to learn about the background and effort behind this concern.

Deepak Gupta

In Reply to Sucheta Dalal 3 years ago

I am a regular subscriber to the MoneyLife magazine and have also attended some of your sessions, though not as often as I'll like to.

All I have stated is that the way this article is written is misleading, and the expected additional cost of biometric features on NEW ATMs and POS machines is not likely to be a major one, either as a share of the one-time purchase cost, or as a share of full lifetime costs. There is no attempt in the article to even present this data, and instead it presents the total cost of purchase. It even mentions the running costs like electricity - as if the new machines will suddenly start consuming a lot more electricity compared to the old ones.

Unlike some of the unscrupulous people you fight against, your readers expect a certain honesty of argument from you while making your case.

As in all matters, there has to be a sense of prioritization. Your focus on banking costs is commendable and helps all of us - you may want to keep it focused on the largest items, and the hidden costs due to banker's nexus with others like insurance.

On UIDAI, there are far bigger issues of lack of public and parliamentary oversight, the semi-private nature of the entity, and complete absence of data privacy laws. You have highlighted these in the past, and in my opinion, that's where the focus should stay.

There is a strident tone in a lot of your commentary and even in your response to my comment above. I understand some of it may come from experience, but please don't let it become a shell that hurts your ability to accept feedback and inputs from people who share your larger goals.

Sucheta Dalal

In Reply to Deepak Gupta 3 years ago

Again Mr Gupta.... everything is a work in progress. There is a meeting with several organisations this Saturday to work out details.

Facts will be available when people are willing to share them. If, despite our best efforts, people in positions of power dont share facts and numbers, there is nothing we can do.

If you notice the strident tone, you, as a reader could not have failed to notice that it happens after a BIG effort to get information using RTI, filing memorandums with the government and failing on several counts.
You may have also noticed that none of this is of benefit to us personally. So pardon me for failing to understand what is the point of your comments and why you are so keen on running down this effort.
Also, for your information, the All India Bank Employees Association is supporting this view. And MP Rajeev Chandrasekhar has raised these issues with the government. Isnt it interesting that none of them found the article misleading or inadequate. While you say that you appreciate our work, I do wonder why you are so agitated at the fact that I have take up an issue that will only save the average bank depositor some money.
Also, the issue of rising bank charges has extensively discussed in a cover story and backed by a survey of people -- it is not my individual view point!

Harish

3 years ago

Governments want to tap each & every step of its citizens, will lead to hell

sekara

3 years ago

If Aadhar is made compulsory for ATMs.OK. I will discontinue using ATMSs. As soos as your salary is credited you can have ECS arrangement with Civic departments like Electric co, water supply Board, Tel, and Insuramce etc. Always keep some cash for daily use.
By this way we can avoid ATMs and save money also.

PRABAL BISWAS

3 years ago

You want everything for free? A country which has learned nothing but to get subsidy to be paid by tax payers money. A population which will not work hard to earn more. So why blame the UPA for Security bill? Just because some are over the poverty line or now less people will work? Nothing happens to countries whose favorite pastime is to produce more and more mouths to eat.

REPLY

Rakesh

In Reply to PRABAL BISWAS 3 years ago

I guess you can see that HDFC Bank, Axis Bank and Yes Banks of the world are on the verge of bankruptcy because they are offering everything free ;)

Sucheta Dalal

In Reply to PRABAL BISWAS 3 years ago

Nobody wants anything free. We are already paying higher and higher charges for bank services. No bank customer needs a new ID in the form of Aadhar. You cannot open a bank account without stringent KYC with multiple identification. With no-frills accounts being purely loss making, the cost of all the tens of thousands biometric ATMs in rural areas will be borne by us the bank customers who do not need them. Government has made no provision for biometric readers in the MASSIVE AAdhar programme and is trying to dump the costs on bank customer through the backdoor. Let the government get Aadhar passed through parliament before it tries these tricks.
Please read what you have written and then re-read the article. There is no contradiction. We are saying dont use us to propogate your subsidies. But easier to jump to conclusions and comment without understanding, right?

Ramesh Iyer

3 years ago

The Aadhar Project is a dubious one floated by the UPA govt with some ulterior motive. On the one hand it says it is not mandatory, but on the other hand it makes it compulsory for LPG consumers to have one to avail of the Direct Benefit Transfer.
When the UPA govt can have many controversial bills (like the Food Security Bill) passed in parliament, why hasn't it tabled a bill to make UIDAI a statutory body which will authorize it to provide the UID No. to all residents of India ? Surely the govt is not telling us the real reasons !

Mukesh kamath

3 years ago

Already consumers and merchants are bearing heavy costs of visa and other card companies. The aadhaar-rupay network will be an alternative and will give competition to the EMV players and who knows the Capex+Opex might be lesser than EMV. And i always believe that more is better. RBI is not making aadhaar mandatory. It is making it available as an additional factor of authentication. And mind you security is the number one reason Indians are not trying out cards. I am sure no one opposes a less cash economy. Any steps to improve card usage is welcome.

SEBI’s selective reaction

Regulators pretend all is well, in response to the most glaring violations we report

A few weeks ago, the Securities & Exchange Board of India (SEBI) decided to break its established practice of responding to the media only through its communications department and sent us an aggressive letter defending the actions it has taken to help investors of portfolio management schemes (PMS). The letter and our response have been published on our website. But it is the first time in nearly six years that SEBI has chosen to respond to an issue, that too in writing. Readers of Moneylife know that we have been fighting a two-year battle to force transparent disclosure of PMS performance. We filed an application under the Right to Information (RTI) Act, won an appeal to the central information commissioner and only then was the regulator forced to publish performance data of these schemes for high net-worth individuals. SEBI’s letter makes no mention of it, or of our pending appeal to put out more comprehensive information. However, it establishes that the regulator does read what Moneylife has been writing, fortnight after fortnight.

So what conclusions does one draw when SEBI does absolutely nothing about the brazen manipulation of stock prices that we have been reporting in our section called “Unquoted” for the past four years? Or, when it does nothing about the shenanigans of the McDonald’s franchisee, Westlife Development, whose share price is locked at the upper circuit with volumes of just one share on most days (the stock rose 220,000% without attracting any action from SEBI or the stock exchanges)? SEBI’s letter, more than anything else, is an indicator of the brazen lack of accountability of India’s independent regulators.

The parliament and its committees, which are supposed to act as natural checks & balances, do not go beyond cursory questions and have no time to examine the opaque answers. Meanwhile, the regulators are arming themselves with greater powers over people and companies which can be wielded with the same deadly effect as other investigation and enforcement agencies. SEBI is not alone in this attitude. The insurance regulator, conveniently located at Hyderabad, rarely responds to or engages with consumers.

Take this example. Moneylife’s Cover Story on how a barely literate retired railway ticket-checker, Arvind Injamuri, was a victim of shocking mis-selling by officials of Reliance Insurance. Some of the policies sold to him smacked of fraud and forgery. Yet, after our persistent follow-up, all IRDA (Insurance Regulatory Development Authority of India) did was to ask the company to cancel the policies and return the money with interest. The same Reliance Insurance has a corporate agent called AB Capital, which is enticing the gullible to buy insurance policies with the outrageous promise that they will receive interest-free loans of up to 10 times the premium. Moneylife Foundation’s insurance helpline has helped 15 people get back over Rs5 lakh. We have written to the regulator and also briefed him at a Mumbai seminar. No action or response.

The Reserve Bank of India (RBI) is far more open, but has no formal mechanism to engage with consumers. Even the chambers of commerce, whose collective financial muscle ought to give them some clout, only lobby the interests of powerful office-bearers. Consequently, new laws, with far-reaching implications for companies and for the national exchequer, have been hurriedly passed by parliament with perfunctory discussion. Educated, tax-paying savers need to start thinking about the long-term consequences of these issues.

User

COMMENTS

Sudeep Sonawane

3 years ago

The article exposes the various regulators' inaction, transparency and questionable practices. Who will monitor the regulators?
- Sudeep Sonawane

Sonika

3 years ago

Looks like the Indian & US regulators suffer from the "OSTRICH SYNDROME".. Their turning a blind eye or behaving deaf, dumb and mute is not going to make the problem disappear.. They need a rude Wake Up Call!!

Saurav

3 years ago

This case of regulators not paying any heed to the concerns of the consumer or the end customers is evident in most sections of B2C dealings. In WB, despite a fraudulent chit fund company called 'Saradha' going bust causing huge losses to lakhs of investors, no attempt has been made to clean up the system in WB, forget ridding the entire nation of such 'criminal' minds. Be it in the case of Robert Vadra or DLF or Mc Donald's, clout and muscle matter more than the call of justice even as India is emerging as a super power and wants to project itself as amongst the finest democracies in the world. The world's largest democracy trumped by a few dirty corners of corruption, that's tragic.

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