Aadhaar-enabled payment frauds: With Aadhaar-enabled payment system (AePS) frauds on the rise, the Reserve Bank of India (RBI) plans to simplify the process for AePS service providers to join. Additionally, the RBI will add more measures to manage fraud in AePS.
What is an Aadhaar-enabled Payment System and how does it work?
According to ET, the Aadhaar-enabled payment system (AePS) allows customers to access their bank accounts using Aadhaar through a business correspondent.AePS offers basic banking services including cash withdrawal, deposit, balance inquiry, mini statements, and Aadhaar-to-Aadhaar fund transfers. To use AePS, customers need an account with a bank that supports AePS and must link their Aadhaar with their bank account. Transactions on AePS require biometric authentication.
To transfer money through AePS, you don’t require an OTP or bank account details. Instead, for Aadhaar-enabled transactions, customers need to provide either their Aadhaar number or virtual ID, along with biometrics, at the Micro ATM managed by the business correspondent. This process verifies the customer’s identity and authentication is done by the Unique Identification Authority of India (UIDAI).
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AePS has become increasingly popular, particularly in rural areas, over the past few years. Currently, according to the National Payments Corporation of India (NPCI) website, 35 commercial banks, 40 rural banks, and 52 cooperative banks provide Aadhaar-enabled payment system services. In 2023 alone, over 37 crore customers conducted transactions using AePS. However, despite its widespread use, the system faces challenges like inadequate infrastructure and security risks.
Rising instances of Aadhaar-enabled payment frauds
Currently, the Aadhaar-enabled payment system lacks two-factor authentication. This has led to instances where fraudsters gain access to Aadhaar card numbers and cloned fingerprints, allowing them to fraudulently withdraw cash from bank accounts. Additionally, some scamsters illegally obtain biometric information from users to commit fraud. Senior citizens are particularly vulnerable to such scams due to their limited digital literacy.
RBI’s plan to combat Aadhaar-enabled payment frauds
The central bank is taking steps to enhance the security of Aadhaar-based online transactions by introducing a standardized and secure onboarding process for all. This includes mandatory due diligence for AePS touchpoint operators, to be enforced by banks. Additionally, the RBI will consider implementing further fraud risk management measures. These initiatives, as stated in the developmental and regulatory policies released by the Reserve Bank of India, aim to strengthen the security of the AePS system and make it more robust. RBI Governor Shaktikanta Das announced these decisions during the Monetary Policy Committee (MPC) meeting on February 8.
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RBI Deputy Governor T Rabi Sankar stressed the need to ensure transaction safety, particularly in rural areas where this system is widely used. He mentioned the possibility of using different technologies over time to enhance security. Additionally, he stated that all touchpoint operators will undergo a standardized and secure onboarding process, with room for incorporating further safety measures.
Expected benefits of RBI’s measures
These measures will greatly benefit the Aadhaar-enabled payment system. Rahul Jain, CFO of NTT DATA Payment Services India, believes that streamlining the onboarding process will strengthen AePS security, while enhanced fraud risk management will deter fraudulent activities. This innovative approach is expected to provide users with smoother and more convenient digital payments.
S L Jain, MD & CEO of Indian Bank, also supports this, stating that the streamlined onboarding process for AePS touchpoint operators will bolster transaction security and user confidence.
Additionally, the National Payments Corporation of India (NPCI) has issued directives to banks to prevent the misuse of customers’ credentials by scammers. Banks are required to allow interoperable AePS cash withdrawal transactions only after Aadhaar-based biometric authentication of business correspondents and agents. Furthermore, they must ensure that BHIM Aadhaar Pay transactions are not misused for cash withdrawals and actively monitor transactions to prevent any potential misuse.
What is an Aadhaar-enabled Payment System and how does it work?
According to ET, the Aadhaar-enabled payment system (AePS) allows customers to access their bank accounts using Aadhaar through a business correspondent.AePS offers basic banking services including cash withdrawal, deposit, balance inquiry, mini statements, and Aadhaar-to-Aadhaar fund transfers. To use AePS, customers need an account with a bank that supports AePS and must link their Aadhaar with their bank account. Transactions on AePS require biometric authentication.
To transfer money through AePS, you don’t require an OTP or bank account details. Instead, for Aadhaar-enabled transactions, customers need to provide either their Aadhaar number or virtual ID, along with biometrics, at the Micro ATM managed by the business correspondent. This process verifies the customer’s identity and authentication is done by the Unique Identification Authority of India (UIDAI).
ALSO READ | Atal Pension Yojana: Know about Aadhaar seeding and onboarding facility for APY – details here
AePS has become increasingly popular, particularly in rural areas, over the past few years. Currently, according to the National Payments Corporation of India (NPCI) website, 35 commercial banks, 40 rural banks, and 52 cooperative banks provide Aadhaar-enabled payment system services. In 2023 alone, over 37 crore customers conducted transactions using AePS. However, despite its widespread use, the system faces challenges like inadequate infrastructure and security risks.
Rising instances of Aadhaar-enabled payment frauds
Currently, the Aadhaar-enabled payment system lacks two-factor authentication. This has led to instances where fraudsters gain access to Aadhaar card numbers and cloned fingerprints, allowing them to fraudulently withdraw cash from bank accounts. Additionally, some scamsters illegally obtain biometric information from users to commit fraud. Senior citizens are particularly vulnerable to such scams due to their limited digital literacy.
RBI’s plan to combat Aadhaar-enabled payment frauds
The central bank is taking steps to enhance the security of Aadhaar-based online transactions by introducing a standardized and secure onboarding process for all. This includes mandatory due diligence for AePS touchpoint operators, to be enforced by banks. Additionally, the RBI will consider implementing further fraud risk management measures. These initiatives, as stated in the developmental and regulatory policies released by the Reserve Bank of India, aim to strengthen the security of the AePS system and make it more robust. RBI Governor Shaktikanta Das announced these decisions during the Monetary Policy Committee (MPC) meeting on February 8.
ALSO READ | NRIs take note! New Aadhaar enrollment and updation rules for Non-Resident Indians notified; details here
RBI Deputy Governor T Rabi Sankar stressed the need to ensure transaction safety, particularly in rural areas where this system is widely used. He mentioned the possibility of using different technologies over time to enhance security. Additionally, he stated that all touchpoint operators will undergo a standardized and secure onboarding process, with room for incorporating further safety measures.
Expected benefits of RBI’s measures
These measures will greatly benefit the Aadhaar-enabled payment system. Rahul Jain, CFO of NTT DATA Payment Services India, believes that streamlining the onboarding process will strengthen AePS security, while enhanced fraud risk management will deter fraudulent activities. This innovative approach is expected to provide users with smoother and more convenient digital payments.
S L Jain, MD & CEO of Indian Bank, also supports this, stating that the streamlined onboarding process for AePS touchpoint operators will bolster transaction security and user confidence.
Additionally, the National Payments Corporation of India (NPCI) has issued directives to banks to prevent the misuse of customers’ credentials by scammers. Banks are required to allow interoperable AePS cash withdrawal transactions only after Aadhaar-based biometric authentication of business correspondents and agents. Furthermore, they must ensure that BHIM Aadhaar Pay transactions are not misused for cash withdrawals and actively monitor transactions to prevent any potential misuse.