Can sending and receiving mobile payments through Aadhaar linked bank accounts be a reality?

One out of four Indians are expected to possess a Unique Identification (UID) number by 2014. Even as the mandatory adoption of Aadhaar-linked Direct Benefits Transfer (DBT) scheme has dealt a blow, the government is ready to roll out its new system. Wherein mobile to mobile payments could be made through the Aadhaar Card or Unique Identification number.

The AEPS system leverages Aadhaar online authentication and enables Aadhaar Enabled Bank Accounts (AEBA) to be operated in anytime-anywhere banking mode through Micro ATMs. This system is controlled by the National Payments Corporation of India (NPCI). Along with Cash withdrawal, Cash deposit, Balance Enquiry etc., consumers will now be able to transfer money between mobile phones. This payment application is slated for a launch on October 11th 2013 in Mumbai, with four banks, including ICICI Bank and Union Bank of India.

Under the Aadhaar-based payments, individuals’ UID numbers would be linked with their bank accounts at the back-end. The Aadhaar-based mobile payment system claims to enable easy money transfer by removing the need to remember bank account details, such as IFSC code, etc, since consumers would require only their Aadhaar numbers. Around 440 Mn cards with 30 Mn bank accounts in the country had already been seeded with Aadhaar and 300,000 more are being added each day, according to Business Standard.

If I take a cab, I can pay him by sending the payment to the bank account that is associated with the Aadhaar number once we expand the authentication capabilities. Aadhar payments were initially just used for government programmes and then we opened it for oil companies and enterprises… We want to create a window for innovative companies says Nandan Nilekani, Chairman of Unique Identification Authority of India (UIDAI).

Companies such as PayPal and M-Pesa made money by acting as intermediary between a customer’s bank account or credit card and the receiver. They render the process simple by replacing several fields of identification for a single one – Phone number for M-Pesa and customer’s email address in case of PayPal. Aadhar card offers a similar advantage with its UID number.

RBI is also working on the feasibility of using encrypted SMSes for such P2P transactions that will use Aadhaar number for authentication.

Not all is well with the AEPS as the Supreme Court in India yesterday ruled that usage of Aadhaar is not mandatory for availing social benefits. This may have an affect on the adoption of AEPS for mobile based transactions.

LTP View: The ease of making payments through the Aadhar card without going through many layers of identification is one of the benefits which may affect the adoption rate of AEPS. However the main challenge lies with the fact that less than 40% of the Indian population have bank accounts. Plus with the recent Supreme Court ruling coming in, adoption of AEPS could see a slow down especially for availing social benefits.