22 May 2014
The Reserve Bank of India (RBI) has deferred the implementation of the Aadhaar linked payment system. It has informed the banks to examine the technical difficulties of the payment system along with the time frame needed to implement it.
According to a report in The Economic Times, the RBI had earlier, in November last year, directed that all new ATMs and POS machines should be tailored to accept Aadhaar.
The chief technical officers had argued that the network had to be overhauled and ATMs and point-of-sale (POS) machines with merchants with merchants would have to be upgraded with biometric readers.
"This was communicated by the regulator to Indian Banks Association. While the project has not been scrapped, it has been kept in abeyance," said a banker. IBA is the association of bank managements. "It took a while for RBI to take the decision," he said..
As per the original proposal, once a person with an Aadhaar card asks the bank to link the 12-digit Aadhaar number with his/her bank account, it would enable the person to withdraw funds from ATMs, receive government benefits directly to the bank account as well as make payments by using fingerprints. Banks felt all this can be achieved with existing technology and there was no need to spend hundreds of crores to set up a new network.
Also, there are technical hurdles: "Data on magnetic swipe of a credit/debit card is transmitted through telephone lines. Biometric data will need high speed connection and the bandwidth and capability has to be raised. Besides, in biometric mode, response time and rejects may be higher and transaction could take longer," one of the service providers stated.
Besides, there are not enough manufacturers to supply ATMs or POS that accept traditional cards with magnetic stripe, EVM pin and chip (a recent technology), as well as fitted with biometric reader for accepting Aadhaar-based transaction. But UIDAI, the agency that issues Aadhaar, is of the view that Aadhaar-based payment technology can be cost effective and beneficial as it will take electronic payments to the masses.