Now, Aadhaar-linked accounts to be basis for mobile payments

The SMS-based application extends DBT's payment architecture to individuals, where their Aadhaar number will be linked to their bank accounts at the back-end.

The Supreme Court’s recent observation might have left the future of the Aadhaar-linked Direct Benefits Transfer (DBT) project hanging in the balance. But that does not seem to dim the government’s focus on the platform. 

It is now set to enable an ecosystem where mobile-to-mobile payments could be singularly effected through the Unique Identity (UID) number.

DBT’s payment architecture would now be extended to individuals. And, under the Aadhaar-linked payment bridge, individuals’ UID numbers would be linked with their bank accounts at the back-end. 

Around 30 million bank accounts in the country had already been seeded with Aadhaar and 300,000 more are being added each day, a government official privy to the plan, asking not to be named, told Business Standard. 

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This payment application is slated for a launch on Wednesday in Mumbai, with four banks, including state-owned Union Bank of India and the country’s largest private-sector lender ICICI Bank.

“The Aadhaar-based remittance system on mobile will make transferring money easy by removing the need to remember bank account details, such as IFSC code, etc, as users will only need their Aadhaar numbers now.” 

If successful, the SMS-based payment application would lead to a paradigm shift in India’s electronic payment system, the official added. Putting a layer of security on transactions, a PIN would be used to authenticate debits.

In his first speech after taking over as the Reserve Bank of India (RBI) governor, Raghuram Rajan had outlined the potential of mobile payments and called it a game changer. 

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“We will set up a Technical Committee to examine the feasibility of using encrypted SMS-based fund transfers using an application that could run on any type of handset,” Rajan had said.

Praveen Chakravarty, chief executive, Anand Rathi Financial Services, says, the application sounds great conceptually and is in line with the government’s current thrust on financial inclusion. “Of the 600,000 villages in the country, banks are present in only 40,000.”

He, however, added it remained to be seen who would take the liability in the case of a fraud. In what could be another challenge, around 95 per cent of Indian mobile users have pre-paid connection and they keep changing their numbers. 

“So, it remains to be seen if the application works only on the Aadhaar number or mobile numbers also play a key role.” According to the 2011 census, around 53.2 per cent of the total households in the country have access to mobile phones.

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The government official also said that five to six more banks were likely to launch the application over the next one month. RBI regulated payment systems under the Payments and Settlements System Act, and the National Payments Corporation of India (NPCI) had taken the necessary approvals from the central bank, the official added.

The Supreme Court had ruled two weeks back that Aadhaar should not be made mandatory for availing of citizen benefits and the government had filed a petition for review of the order. Interestingly, the apex court is expected to take a view on the matter concerning mandatory linkage of Aadhaar for transfer of welfare payments under the DBT project on Tuesday.

Around Rs 480 crore (Rs 4.8 billion) had been transferred directly into the accounts of beneficiaries under the DBT scheme till early September.

The Cabinet is also likely to take up the National Identification Authority of India Bill on Tuesday to give the UID Authority of India a legal backing. After being approved by the Cabinet, the Bill is expected to be moved to Parliament during its winter session.

A UNIQUE SHIFT

• The SMS-based application extends DBT’s payment architecture to individuals, where their Aadhaar number will be linked to their bank accounts at the back-end
• Around 30 million bank accounts in the country have already been seeded with Aadhaar and 300,000 more are being added each day
• Application to be launch on Wednesday in Mumbai with four banks, including Union Bank of India and ICICI Bank
• A PIN will be used for authenticating debits, putting a layer of security on transactions
• The Cabinet is also likely to take up the National Identification Authority of India Bill on Tuesday to give UIDAI a legal backing