Assessing the role of Aadhaar as a payment infrastructure: a case study

Download the case study here: Aadhaar as a payment infrastructure: current implementation and challenges

Aadhaar is playing an ever-increasing role in the government’s efforts to improve financial inclusion. As Pradhan Mantri Jan Dhan Yojana (PMJDY)–the central government’s scheme to drive financial inclusion–hits 300 million bank accounts opened, the government has been increasingly focussed on the integration of these Jan Dhan accounts with Aadhaar.

A lot of progress has been made in terms of integrating Aadhaar into the current banking system. For example, Aadhaar-enabled portable devices known as microATMs have been rolled out to a significant majority of Bank Mitras in the PMJDY programme. This not only allows customers to open bank accounts using Aadhaar e-KYC but also to engage in transactions such as withdrawing or depositing money without the need to visit a brick-and-mortar bank outlet.

Despite such progress, many challenges remain. State of Aadhaar has partnered with MicroSave to produce a case study assessing the role of Aadhaar in the broader financial inclusion and payment infrastructure. MicroSave highlights two main sets of challenges, the first of which is infrastructural in nature and the second of which is operational (see Figure 1).

Infrastructural challenges are largely due to factors such as low levels of Aadhaar enrolment saturation in some states, the lack of operational Aadhaar-enabled devices in some banking outlets, and network connectivity issues for Aadhaar-enabled devices. These challenges can limit the level of access for both the unbanked—and under-banked—populations in India.

There are also issues arising from cumbersome operational processes. For example, seeding of an Aadhaar number to one’s bank account is a multi-step process requiring daily synchronization between a bank’s Core Banking System and the National Payments Corporation of India’s (NPCI) Aadhaar Mapper database. Delays or errors in seeding of Aadhaar information by banks can make direct benefit transfer payments inaccessible or hinder a customer’s ability to transact with their account using an Aadhaar-enabled microATM. These issues can contribute to a poor user experience of the system.

Much of the data and observations in the case study are derived from three expansive surveys the MicroSave team conducted between December 2014 and December 2015, which studied key elements of PMJDY. We invite researchers to explore this issue further in ways that can contribute to our understanding of both the potential benefits and the likely challenges of having Aadhaar play a key role in the financial inclusion and payment infrastructure.