What the Aadhaar payment pipe offers

Simple, yet complex: A high-level task force has laid out a blueprint for a single-platform e-payment gateway linked to and enabled by Aadhaar. — File photo: K. Murali Kumar  

Weeks before the Union Budget, a high-level task force on ‘Aadhaar-Enabled Unified Payment Infrastructure', on Thursday, submitted a report laying out a blueprint for a single-platform e-payment gateway to facilitate the transfer of subsidies and payments for various government schemes. This solution, to be linked to and enabled by Aadhaar, is to provide a standard platform for various government institutions so that they can make payments in an automated manner.

An interoperable network of 10 lakh Business Correspondents, who were conceived as the magic wand to address the objective of financial inclusion, is to use the combined infrastructure of banks and India Post, across the 2.25 lakh gram panchayats in the country.

Widely perceived as a precursor to the introduction of cash transfers or direct subsidies, this payment gateway will be implemented by the National Payments Corporation of India, an outfit promoted by leading Indian banks. Another significant component of this proposal is the Unique Identification Authority of India's (UIDAI's) own MicroATM, currently being piloted in rural Jharkhand for the disbursement of wages under the Mahatma Gandhi National Rural Employment Guarantee Act.

Automating payments

So what does implementing this single-platform payment system involve in terms of technology? The process envisaged, though challenging, is basic. It proposes that a government e-payments gateway be set up, implemented by the Controller General of Accounts. This means that the process of transferring funds from the Finance Ministry to various departments, both for Direct Transfer of Subsidies and Electronic Benefit Transfers, will be automated.

To put it simply, the government department will send an encrypted file containing the Aadhaar number and the payment amount to the accredited bank. This is then processed through an interoperable (across banks) Aadhaar Payments Bridge. This bridge sends the information to the National Payments Corporation of India, which interfaces with accredited banks (each Aadhaar number is mapped to beneficiaries' accounts at the backend of this system).

Speaking to The Hindu, deputy director-general, UIDAI, A.P. Singh said such a system would not be tough to implement because “there's very little new stuff”. “Basically, Aadhaar provides the glue to piece existing technologies together. And it simplifies processes, like opening a bank account,” he said.

He pointed out that out of the 200 million enrolments, in its first phase, 84 per cent residents opted to open an Aadhaar-linked bank account. The bridge, he points out, is a simple intervention, where a simple file can be created and uploaded with just the payment amount and the Aadhaar number. “These capabilities are worked out at the NPCI level, and the entire system provides end-to-end visibility, and ensures there is no duplication.”

While this simple single-platform system does not involve either biometrics or authentication, the flagship features of the Aadhaar project, what is being envisaged outside this software layer may be a little more complex. Though the proof-of-concept reports on the pilots in Jharkhand are yet to be made public, Mr. Singh emphasised that it has been “a success”. The false rejection rate, he pegs at around two per cent, which will be “further brought down to 1.2 per cent”. This counters claims by critics who have argued that fingerprint authentication will be a challenge in rural India. “To improve this factor, we are also working out a way for residents to test their best finger,” he added.

Operating on a basic mobile network, Mr. Singh says, the turnaround time to obtain a yes/no authentication message (from the central UIDAI servers) is between eight to 12 seconds. Currently these MicroATMs — which is a basic Point of Sale terminal with a biometric reader — cost around Rs. 10,000-12,000. From March onwards, this pilot will be rolled out in many more districts across the country, he added.


Getting the ball rolling on this system will require all government departments and institutions to fully digitise all their payment sanction processes. This itself will be a huge task, a senior official from the Department of Information Technology told The Hindu, adding that the process is already on in several departments.

For instance, in Karnataka, the Government implemented a pilot project for electronic transfer of MNREGA wages in Nelamangala taluk. This “largely successful” pilot programme involved making a database of all job card holders with their bank account numbers, entering digitally encrypted job details and wage lists to the MIS systems, which is then interfaced with a designated bank for cash transfer to beneficiaries.

In the pilot, out of 1,175 total transactions, 1,146 were conducted successfully, said P. Shivshankar, State director, MNREGA. However, the challenges, he conceded were considerable, right from getting beneficiaries to open bank accounts in the designated banks to validating existing data in the informatics system and prepping up the infrastructure requirements.

This task, in the case of the MNREGA financial management system was simpler because there has been an efficient informatics system in place for over three years now. In the case of many other schemes, particularly those run by State Governments across the country, setting up the infrastructure and automating the process will take some time.

While all this may be fine, the weakest link in the chain may well be its last link — the Business Correspondents who are expected to actually make payments to beneficiaries. With the experience with microfinance fresh in the mind, there are fears that this may well be the point of “leakage” that Aadhaar, with all its fanfare, is supposed to plug.

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Printable version | Nov 27, 2020 8:15:25 PM |

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