One Number to include them all, One Number to reach them and verify them; and in the promising future, modernize them.

Aadhaar (meaning ‘identity’ in Hindi) has been one of the most ambitious projects of the Indian government.

The idea was to introduce a unique identity number that could be a single source of identification for any Indian citizen. From registering a mobile SIM card, to the issuance of a passport, the Aadhaar card has become mandatory for any Indian citizen.

Also, Aadhaar numbers have been integrated with documents related to income tax, sales tax, housing tax, GST, passport and even the COVID vaccination certificates. According to the CEO of fintech firm RBP Finivis, Sam Gupta: “India has seen constant growth in digital payments in the last two years, and this was made possible by the intervention of unique identity codes of each individual through Aadhaar. Cashless transactions could only happen when your e-wallet was linked to your Aadhaar.”

Aadhaar card as an e-wallet?

Since the identity of a citizen is verified through Aadhaar, the identity card has even more potential for additional uses. Gupta commented: “The Government has made Aadhaar mandatory for opening any bank account. All government grants and subsidies are sent directly to Aadhaar-linked bank accounts only. So, when all the digital payments are linked to Aadhaar, why can’t Aadhaar itself become an e-wallet, so that it becomes a single point for all your transactions?”

Echoing similar optimism, Dilip Modi, founder of Spice Money, noted that over 90% of the Indian population have been issued the biometric identifier, Aadhaar: “According to one survey 87% of rural Indians polled had approved mandatory linking of Aadhaar to government services. Given the widespread reach of Aadhaar, it will help in creating a significant impact towards the financial inclusion of semi-urban and rural communities in India. The government has opened over 240m bank accounts under the Jan Dhan, Aadhaar and Mobile (JAM) scheme in just a few months. This has helped to ensure that every citizen of the country with a bank account linked to Aadhaar.”

Similarly, Raj N, Founder and Chairman of Zaggle and ZikZuk has asserted that the Indian government is undertaking many initiatives to promote the concept of cashless economy, so it will definitely push Aadhaar to be an E-wallet and a one-point authentication for various things. He said: “The Government is planning to utilize the Aadhaar database to give shape to a digital future and utilize it for payments, and authentication of transactions is the key to its success. Electronic payments are the first step on the financial inclusion ladder and are also essential for the efficient and frictionless functioning of the economy.”

From cash-based to Aadhaar-centric

India has traditionally been a cash-based economy. But the current global pandemic has accelerated contactless payments and facilitated a large number of digital transactions.

Raj noted: “India is poised to become a cashless economy due to changes in people’s perceptions, technology assessments, internet facilities and government initiatives. BHIM Aadhaar can allow merchants to carry out account-to-account transfers; let customers pay without any card/phone; and enable merchants to accept payments through their mobile phones using a fingerprint scanner. It could be direct credit transactions from customers’ bank accounts to merchants’ through instantaneous transfer, authenticated by customers’ fingerprint. This is highly secure.”

Modi added that Aadhaar allows individuals to carry out financial transactions through Aadhaar-based authentication, thereby empowering people with access to financial and banking services: “The Aadhaar Enabled Payment System (AePS) provides a simple, secure and user-friendly way of payment through the Aadhaar number and by providing Aadhaar verification at point of Sale (PoS) or micro ATMs. Furthermore, the rapid smartphone penetration in India is a key factor in improving financial connectivity of rural communities with the digital world. Given these factors, integration of different financial services using Aadhaar is definitely something that can be explored to further improve access of financial services to India’s underserved and unbanked customers.”

The AePS has been playing a critical role in driving financial inclusion for the semi-urban and rural economy—a community that has essentially been cash-driven. One of the major gaps that the system bridges is the waiver of documentary proof to open a bank account, thereby improving inclusion of rural folks into the formal banking system. With AePS, fintech players can extend banking services to rural communities with the help of ‘banking correspondent agents’ (BCA) who are locals and understand the needs of their communities. With just an Aadhaar number and verification at the point of sale, rural customers can access services (such as cash withdrawals, fund transfers, balance inquiries and so on) which were previously only available at traditional bank branches.

Making the AePS even more inclusive

In boosting ease of access to financial services, especially amongst rural communities, the AePS is already being leveraged to directly transfer financial subsidies, pensions and stimulus packages to those residing in far-flung areas of the country, more so during the pandemic.

Modi, whose firm has disbursed Rs4bn of Direct Benefit Transfer via its platform to rural India during the last financial year, has a suggestion to the government: “One of the things that would benefit private players to promote AePS is by making acceptance of digital payments by merchants cost-effective and easier. Currently, there is a separate finger scanner that merchants or agents need to have in place to initiate transactions. The government and fintech players can innovate solutions together in a way that will allow biometric authentication to happen through the same smartphone that the BCA is using for AePS transactions.”

This, according to Modi, only goes on to highlight the potential of AePS to become the UPI of rural India, driven by the ease of digital transactions for last-mile consumers.