RBI Defers Aadhaar-linked Payment Plan
Central bank asks banks to examine the technical difficulties of the proposed payment system and the time frame to implement it
For the past one year bankers have been trying to tell the Reserve Bank of India (RBI) about the drawbacks of an ambitious plan to let customers use fingerprints to withdraw money from ATMs and pay for purchases. It is expensive, risky and would serve only a handful of clients, they argued. Chief technology officers and payment experts told the panel examining the project that it made no sense — the network has to be overhauled and ATMs and point-of-sale (POS) machines with merchants have to be upgraded with biometric readers. Their views were ignored, thanks to the previous government’s emphasis on Aadhaar, which is based on biometric validation. In November, RBI directed that all new ATMs and POS machines should be tailored to accept Aadhaar. Bank CEOs opposed the move, but there was no hint that RBI would rethink. However, 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. “This was communicated by the regulator to Indian Banks Association...While the project has not been scrapped, it has been kept in abeyance,” said a banker. IBA is the association of bank managements. “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,” he said.
As per the original proposal, once a person with an Aadhaar card asks the bank to link the 12digit Aadhaar number with his/ her bank account, it would enable the person to withdraw funds from ATMs, receive gover nment benefits directly to the bank account as well as make payments by using fingerprints.
Banks felt all this can be achieved with existing technology and there was no need to spend hundreds of crores to set up a new network. Also, there are technical hurdles: “Data on magnetic swipe of a credit/debit card is transmitted through telephone lines. Bio- metric data will need high speed connection and the bandwidth and capability has to be raised. Besides, in biometric mode, response time and rejects may be higher and transaction could take longer,” one of the service providers told ET. Besides, there are not enough manufacturers to supply ATMs or POS that accept traditional cards with magnetic stripe, EVM pin and chip (a recent technology), as well as fitted with biometric reader for accepting Aadhaar-based transaction. But UIDAI, the agency that issues Aadhaar, is of the view that Aadhaar-based payment technology can be cost effective and beneficial as it will take electronic payments to the masses.