Aadhaar Act: eKYC for banks, mobiles good, now fintechs must also comply

The government has now approved an amendment to the Aadhaar Bill that allows voluntary use of Aadhaar for banks and mobile phones

The potential offered by Aadhaar to cut theft in delivery of government services like rations and subsidised LPG cylinders was always obvious—so far, the government has transferred `7.4 lakh crore and made savings of `1.4 lakh crore through this—and that is why, despite the opposition from various activists who argued this would create a surveillance state and was a breach of privacy, the Supreme Court upheld the validity of the Aadhaar Act. Oddly though, given the SC dismissed the fears of Aadhaar leading to the creation of a surveillance state, it chose to read down Section 57 of the Aadhaar Act that allowed it to be used as a KYC for any purpose. In the event, Aadhaar authentication was to be used only for availing government subsidies, but it couldn’t be used for compulsorily linking with bank accounts or as a KYC for getting a mobile phone. Though the SC said that the Aadhaar database was safe, for some reason, it said private sector firms were not allowed to access it.

Immediately, this raised the cost of doing business quite dramatically for banks, telcos and fintechs. A telco, for instance, could no longer do an Aadhaar-based eKYC, but would have to do a physical verification; ditto for a fintech and, as a result, a lot of business possibilities got ruled out. With eKYC, for example, it may have made business sense for a mutual fund to sell units worth even `100; but if physical verification needed to be done, the business was clearly unviable. UIDAI, which is in charge of the Aadhaar programme, to its credit, came up with some interesting solutions. A virtual ID was offered to mask even the Aadhaar number—this was a random number that a user could generate using the Aadhaar app or on the website—and even offline solutions were offered. A customer could give a bank/telco her Aadhaar slip that had a QR code printed on it and the bank/telco could read this using a card reader; the name, age, address and photograph of the person will show on the screen.

The government has now approved an amendment to the Aadhaar Bill that allows voluntary use of Aadhaar for banks and mobile phones, and necessary changes will be made to the Telegraph Act as well as the Prevention of Money Laundering Act. This means that, while banks and telcos will have to offer customers a non-Aadhaar solution as well, being allowed to use Aadhaar will drive down customer acquisition costs. While fintechs can continue to use the offline solutions offered earlier, it would help if the government made online verification possible here as well on a voluntary basis.