RBI defers Aadhaar-based payment system?
Moneylife Digital Team 23 May 2014
The Reserve Bank, which was adamant in enforcing biometrics-based Aadhaar on bank customers, has now reportedly asked banks to examine technical difficulties and time frame for the Aadhaar-based payment system, including ATMs and PoS
The Reserve Bank of India (RBI), which was forced to take back its diktat on making Aadhaar authentication using biometrics mandatory, has now reportedly decided to defer its decision of using the unique identification (UID) in payment systems.
According to a report from the Economic Times, a fortnight ago, RBI told banks — perhaps due to the uncertainty of Aadhaar under a new government — to examine the technical difficulties of the proposed payment system and the time frame for implementing it. "It took a while for RBI to take the decision... that we believe is because of the importance that the UPA II government had placed on Aadhaar. It was a favourite project under Nandan Nilekani, who everyone thought was very close to the power centres. The panel's report was not made public," the report said quoting a banker. 
Moneylife has been raising the issue of using the biometrics-enabled Aadhaar for payment systems, including automated teller machines (ATMs). Last year in September,  Moneylife Foundation hosted a round table 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 (CERC), 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 of Aadhaar enabled ATMs and PoS.
The key issue during the round table was: Who will bear the huge technology cost involved in the project? Activists feared that the banking system was being used by the Unique Identification Authority of India (UIDAI) to create nationwide infrastructure of biometric readers and scanners at the cost of bank consumers. Further, UIDAI was planning to charge a fee for each Aadhaar authentication, which would also have to be borne by consumers.
Among the issues raised at the discussion were 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.
The group then together drafted and sent a memorandum to RBI governor Dr Raghuram Rajan. Rajeev Chandrasekhar, member of Parliament (MP) as well as member of the Standing Committee on Finance, then requested Prime Minister Manmohan Singh to relook at the RBI's proposal on Aadhaar authenticated biometric automated teller machines (ATMs).
He also raised the issue in the Rajya Sabha. In its reply in the Rajya Sabha, the ministry of finance said that the RBI had set aside its earlier decision of Aadhaar authentication using biometrics saying it was not mandatory upon banks to adopt Aadhaar as additional factor of authentication. The RBI then notified that banks can continue with the EMV Chip and Pin technology for securing the card present payment infrastructure.
Various Aadhaar programmes have already seen thousands of crores of taxpayers’ money being spent aimlessly without proper understanding of the issue. "There is neither a parliamentary debate —or approval —nor any effort by the government to have a public consultation in order to ascertain whether Aadhaar series of measure is beneficial to the nation. Aadhaar programme is being funded using public money, and needs to be reviewed immediately. The programme’s objectives should be clearly defined given the fact that Supreme Court order decided not to make subsidies conditional upon Aadhaar,” Chandrasekhar had said.
Moneylife has been pointing out that the directive from RBI would have involved 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 point of sales (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).
In November 2013, 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 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 acquires (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.
In addition, several experts have pointed out that using Aadhaar for identification is completely different than using it for authentication. Especially, when it comes to using biometric data of Aadhaar for payment transactions, the facts are not too encouraging. Several poor people like housemaids and construction labourers are finding it difficult to even enrol for Aadhaar due to lack of a clean fingerprint sample. Some could not even submit sample of their iris due to cataract. In such cases, how would the Aadhaar help in authenticating the card present transaction? Also, why burden the entire banking system with high costs, which will have to be paid by hundreds of million account holders who have no need for biometric identification and have no reason to support biometric authentication systems? 
Unfortunately, instead of addressing all the problems related with the Aadhaar, the UPA government was forcing its usage and acceptance, that too without any Parliamentary approval for the UIDAI scheme. The hard push for biometric ATMs is just one of the examples about how technology was being used to exclude the needy, without even thinking about the cost. Hopefully, the new government under Narendra Modi would help stop harassment of bank customers by curtailing such ideas.
Mukesh kamath
9 years ago
Better to give flexibility to the banks to decide whether they want to use biometrics or not. Some bank which wants to capture the market may use e-kyc afforded by aadhaar to create accounts superfast and also let illiterate people transact. This biometric based system is not for the elite. It is for the anghuta chap.
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