One Billion on Biometric Aadhaar – Fintech India could be a model for financial inclusion

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Over the past 18 months, the onboarding of consumers to Aadhaar in India has been an intriguing transformation. The possibilities for digital banking and payments are ever-growing in emerging countries, and with Government backed schemes suitably supporting this infrastructure, India could soon be a Data-Rich country– effectively driving financial inclusion.

Designed by Nandan Nilekani for the India government with the bold vision of onboarding over 1.25 billion people to its system, Aadhaar is an ID card that uses biometrics, and it’s transforming methods of authenticity within the financial services sector. Using a combination of card and a fingerprint, Aadhaar makes it possible to prove identity quickly and more accurately, without the need for a paper trail, which also makes the scheme more environmentally friendly.

Aadhaar has now been in progress for almost seven years and impressively managed to hit a billion users after just five – two years quicker than online giant Facebook.

A WhatsApp moment is now upon us in Indian banking
– Nandan Nilekani

A key shift in recent years has been the introduction of biometrics into our daily lives and routines. The prime example of this is through smartphones and Apple technology, but other examples include home security. In many ways our smartphones have become a mobile profile of ourselves and, using fingerprint access, through them we can now access social media accounts, online banking, debit and credit cards and all sorts of other important documentation and information.

Although this may seem high-risk, use of biometrics has remained largely trouble-free, and it’s interesting to see how this technology has been utilised by Aadhaar’s innovative model.

In the past week, it has been of great interest following chairman of the Telecom Regulatory Authority of India, RS Sharma’s attempt to combat ‘scaremongering’ aimed at potential users and showcase just how full-proof Aadhaar’s security measures are.

Sharma took to Twitter to share his personal Aadhaar identification number before laying down the gauntlet to hackers, who he assured would not be able to breach Aadhaar’s security systems.

Whilst some of Sharma’s personal details have since circulated on social media, the UIDAI maintains that this information was already openly available online and has not been obtained from Aadhaar.

Writing in the Indian Express, Sharma said that he hoped this challenge would put an end to the scaremongering so that the people of India can benefit from Aadhaar technology.

Aadhaar is the first government-led initiative to have received such widespread adoption and the possibilities for digital banking through the Aadhaar initiative is immense, with transactions going digital.

The demonetisation process took place in India roughly 18 months ago and the remonetisation process that followed has been characterised by a move to digital. While this is only the beginning, the uptake across the banking and the payments ecosystem in India for digitisation has been huge.

As the twin forces of disintermediation and digitisation accelerate the pace of change, the quick – banks able to perform – will not only survive but capture increasing market share, while the dead – banks unable to cope with the change – will get marginalised

– Credit Suisse

The savings digitisation provides and the positive impact it has already had is clear. The new systems for monitoring transactions at fair price shops (FPS) are helping slash government’s food subsidy bill. A quarter of the ration card holders (used to identify subsidy beneficiaries) in the state of Haryana have not turned up for collecting the provisions since June 2017, when all 9,500 FPS in the state began using electronic point of sale (ePoS) machines.

Industry body ASSOCHAM says that Aadhaar cards have resulted in Rs 83,184 crore reaching beneficiaries of the Direct Benefit Transfer (DBT) schemes, without the notorious leakages of the past.  This number is currently based on states that have completely implemented Aadhaar across benefit schemes.

financial inclusion figures

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However, to maximise the benefit of the Aadhaar revolution, there is still much to be done in rural parts of the country. PoS infrastructure will need to be improved with a more cost-effective solution. With only 10% of the population speaking fluent English, this will also need to be regionalised. Smartphone adoption is also still limited in some rural areas, although mobile networks and phones have penetrated well.

However, the government has launched smart city initiatives by identifying 100 Tier 1 and Tier 2 cities. A subset of this list could be identified for complete digitisation as a pilot, to be replicated across the rest.

Through schemes like GST and Demonetisation, the Modi Government has improved the top line of the country’s economy, whereas, through Aadhaar, it is doing wonders to the bottom line – bringing efficiency where it matters. And this could be a model that other emerging economies.

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