Aadhar, Aadhar Enabled Payment System, AePS

Why Aadhar enabled Payment System (AePS) will work in India : (A Layman’s Guide to Aadhar enabled Payment System (AePS)

” I would take the liberty to start my thoughts with #AePS is the #DebitCardofRuralIndia & of Less Literate people”.

Aadhar, the biggest biometric-based system in the world has grown immensely in last few years in India, and has been debated widely for its use and misuse. Aadhar which started with authentication in India has now taken a lot into its fold like Payments, Banking, Authentication, Service delivery, paperless systems etc. It now claims to be the biggest interoperable system in the world and is helping India Stack architecture to support its multiple layers.

Source – India Stack

Aadhar is regulated by Targeted Delivery of Financial and Other Subsidies, Benefits and Services Act 2016, and has made Subsidies, Benefits and Services delivery to citizens almost seamless and targeted to intended beneficiaries. While few will argue, but it has immense potential and it seems that with the current trend and push in the system we are going in the right direction. Now people can open bank accounts, buy SIM cards, take LPG subsidy, do Aadhar to Aadhar transfers, Peer to Peer (P2P) transfers and a lot more which I have talked about and keep sharing in my posts.

While Aadhar has multiple benefits and use cases, let us pick up Aaadhar Enabled Payment System (AePS), and talk about it in detail.

What is AePS

AEPS is a bank led model which allows online interoperable financial transaction at PoS (MicroATM) through the Business correspondent of any bank using the Aadhaar authentication.

The five possible Aadhaar enabled transactions are:-

  1. Cash Deposit
  2. Balance Enquiry
  3. Fund Transfer
  4. Cash Withdrawal
  5. Merchant Payment

There are Six institutions which gets involved, in processing an AePS payment and settlement;

1.     You, the bank customer

2.     Banking correspondent (BC)/Partner – The facilitator of AEPS

3.     The bank of BC/Partner– The bank to which banking correspondent is attached

4.     Your Bank – the bank with which you have the bank account

5.     NPCI – For switching, clearing and settlement of transactions

6.     UIDAI – For finger-print authentication

Following diagram will explain the AePS architecture and settlement system:

Why AePS will work in Rural India

Everybody is talking about AePS and its viability in India, it has multiple benefits like reducing the burden on banks and bring efficiency and transparency in the payment system. Let me explain few of the benefits;

1.     Reduces ATM cost for banks – It helps to bring down the ATM cost for the bank, because those transactions can be easily completed by a BC for customers at much lower cost than an ATM

2.     Lower MDR – AePS merchant payments aim to bring down the MDR so that more people start preferring electronic payments and even merchants would embrace it without much hit on their margins

3.     Quick Pay or Accept Payments – Accept and make payments with minimum input details like;

§ Aadhar Number

§ Bank IIN or Name

§ Fingerprint

4.     Safety – Your bank details are safe because you do not have to share your bank account number, IFSC code and other sensitive information with the merchant

5.     Serves illiterate too – The biggest advantage of the system is that it counters the issue of illiteracy in India, because illiterate people could not use the debit card and remember PIN number, but now they can transact using their Biometrics, like finger impression and may be in future with their iris.

6.     Low cost of service – Cost of serving per customer has gone down, as AePS is an infrastructure-lite model and doesn’t require bulky EDC machines and hence avoiding the huge fixed cost

7.     Portable – The biometric machine is portable and can be carried easily; it can be easily plugged in any computer or a Mobile device to make payments. This will help to facilitate door step service by Business Correspondents (BCs) & other Online and Off-Line Merchants

8.     Secured Biometric devices – The biometric devices are STQC certified and must be Level 0 and 1 compliant, as per registered device regulations and all device manufacturers must adhere to it. So, the security concerns have been addressed to much extent

9.     Secured Aadhar Infrastructure – Aadhar PKI based architecture is secured, and its ever evolving security standards ensures the banking and customer data remains secured and details are safe within the system

With the above mentioned benefits and many more, the AePS claims to be a big hit in India as part of Digital India initiative. I hope the countries who are watching India currently for this development will surely adopt this model, and we will be a proud front runner in this space.