Reserve Bank of India had advised all banks to include biometric sensor in all new credit card swiping machines and to improve their existing infrastructure to enable use of Aadhaar-based biometric authentication while making card-based payments. MP Rajeev Chandrasekhar has now questioned the move and raised several questions in a letter addressed to RBI Governor, Dr Raghuram Rajan.
The RBI circular follows a recommendation by a working group on Securing Card Present Transactions in 2011.
Highlights from the letter
- Starting such a massive programme to link bank accounts to the Aadhaar database will involve huge, additional costs. These will eventually be passed on to customers / bank depositors.
- All new biometric-based machines will need to have facilities to scan biometrics, which will significantly increase investment cost — for both installation and operation.
- Added expenditure for banks as the new machines will require the equivalent of 3G data speeds to transmit biometric data. Aadhaar has, so far, made no mention of who will bear the cost of biometric PoS readers and ATMs.
- Such a proposal, without adequate capital for such massive infrastructure requirements, will result in a high cost burden for the entire banking system.
- Even though several banks launched biometric authentication in ATMs between 2004 and 2007, it did not work and its implementation has so far proved costly for banks as well as the customers.
- The purpose of Aadhaar number should be to reduce the costs of the final customers, and bringing them within the institutional banking framework. Yet, there are constant complaints by many bankers that the technology costs are extremely high, and must be borne by the customer
- Reconsider this proposal – in the interest of the millions of banking consumers — present and future – and ensure their interests are safeguarded.
- Aadhaar programme has not provided the costs of the biometric readers. This implies that the UIDAI hopes to pass off theses costs to the banks.
- Banks have to pay UIDAI for verification and authorisation of every transaction and the final burden for this will be on the shoulders of the common man.
Here’s the full letter
Sub: Cost of banking to customers
I write to you with regard to the RBI’s recent circular on 02 September, 2013 stipulating banks to introduce additional facilities in all new credit card swipe (Point of Sale or PoS) machines and automated Teller Machines (ATMs) for providing a mechanism for Aadhaar authentication using biometrics.
While the intended purpose of greater financial inclusion is honorable, starting such a massive programme to link bank accounts to the Aadhaar database will involve huge, additional costs. These will eventually be passed on to customers / bank depositors.
The country currently has 1.2 lakh ATMs and 10.30 lakh card swiping /PoS machines. Over 2 lakh PoS and 20,000 ATMs expected to be added by next year. All these new biometric-based machines will need to have facilities to scan biometrics, which will significantly increase investment cost — for both installation and operation. Additionally, it has been reported that traditional phone lines may not work to send scanned fingerprint images for verification. This will pose an added expenditure for banks as the new machines will require the equivalent of 3G data speeds to transmit biometric data. Aadhaar has, so far, made no mention of who will bear the cost of biometric PoS readers and ATMs.
Further, while the RBI has adopted a combination of ‘chip and pin’ authentication for existing customers and biometric checks for unbanked cardholders, the real challenge is in the acceptance devices. The procurement of new equipment to facilitate these biometric checks have huge cost implications for the banks, who will ultimately transfer the burden on to the customers. Banks will ultimately have to divert funds for developing these businesses to facilitate new infrastructure. Banks, who are already reeling under the burden of high operating costs, and customers, who are already burdened by the array of “convenience charges” imposed by banks for online transfers, SMS-alerts etc., are understandably vary of the implications of this proposal.
While there is a need for much stronger authentication mechanism and customer security — such a proposal, without adequate capital for such massive infrastructure requirements, will result in a high cost burden for the entire banking system – which will ultimately have to be borne by the hundreds of millions of account holders in the country.
Additionally, even though Aadhaar-based authentication was launched by several banks through biometric ATMs between 2004 and 2007, it did not work and its implementation has so far proved costly for banks as well as the customers. The ATMs could not authenticate the biometrics of many underprevilaged citizens, and therefore, had to be discarded. Therefore, there is a need to conduct adequate feasibility tests before such a proposal is implemented.
The purpose of Aadhaar number should be to reduce the costs of the final customers, and bringing them within the institutional banking framework. Yet, there are constant complaints by many bankers that the technology costs are extremely high, and must be borne by the customer. Further, the Aadhaar programme has not provided the costs of the biometric readers, which is essential for the delivery of these services to the people. This implies that the UIDAI hopes to pass off theses costs to the banks. Also, it has been brought to my knowledge, through various media reports, that the banks have to pay UIDAI for verification and authorisation of every transaction and that this revenue is a part of the business plan. The final burden for this will be on the shoulders of the common man.
Therefore, in the interest of millions of banking consumers, and especially in light of the recent Supreme Court ruling on the Aadhaar card, I urge you to reconsider this proposal – in the interest of the millions of banking consumers — present and future – and ensure their interests are safeguarded.
Yours Sincerely
Rajeev Chandrasekhar
Download the letter here (.pdf)
