This wave of digitisation isn’t coming from the metros alone. We’re also seeing first-time internet users in droves logging on from non-metros. Therefore, banks are not just in competition with themselves but also with online businesses such as Amazon who are redefining the way Indians fulfil their needs through the internet.
The future of banking and financial services lies not in the proliferation of branch offices but in simply leveraging the reach of two platforms: Aadhaar and the internet. Without Aadhaar, in fact, financial inequalities in India may be exacerbated.
How Aadhaar had made banking easy?
Before the Supreme Court’s Aadhaar verdict, you could have opened a limited functionality savings or borrowal account through your phone with minimal waiting time. The need to visit a bank branch, or carry photocopies of your ID and address proof, or spend time in a queue was minimal.
Read more:Know how to link PAN with Aadhaar
You could have completed your application from the comfort of your home. Aadhaar played a role in this paperless, presence-less account opening model. It allowed customers to authenticate themselves through an OTP. Today, you have other modes of account authentication that work paperlessly.
For example, SEBI has cleared the use of video in-person verification where your meeting with a mutual fund house happens via video. The customer today expects these conveniences. The onus is on the Reserve Bank of India to catch up with technology and pave such paths to instant banking.
With this simplified access framework, fewer Indians in the far reaches of the country would need to visit banks or post offices for financial services. The whole marketplace will be available to them on their internet-connected phones and smart phones with camera would pave way for video IPV.
Why Aadhaar?
What can Aadhaar achieve that your driver’s license, election ID, or passport can’t? After all, they too are proofs of ID and address. With over 120 crore Indians on its database, it beats every other form of ID. Not just that, Aadhaar has the unique ability to instantly, uniquely, and digitally identify Indians. No other database has these capabilities.
Therefore, in banking, Aadhaar use can cut processing time and costs, de-dupe identities, and weed out fraud. With barriers to the formal institutions of finance lowered in this manner, more Indians will save, borrow, invest, and insure via financial entities and fintech. Ultimately, this would help improve household income of Indians.
For example, instead of borrowing from the village loan shark, a person with access to paperless banking can borrow at affordable rates from a bank. This will certainly remove financial inequalities. Moreover, instead of locking up his capital in high-risk assets such as real estate or gold, he may be able to create wealth by investing in mutual funds.
Is it safe?
The Supreme Court has upheld the constitutionality of the Aadhaar Act in principle, though some provisions have been read down or struck down. It upheld the idea that the unique ID “meets the concept of constitutional trust, limited government and good governance and empowers marginalised section of society.” Furthermore, the central government passed The Aadhaar and Other Laws (Amendment) Bill, 2018 in the Lok Sabha.
The bill, among other things, prescribes a 10-year jail term for unauthorised access to the Central Identities Data Repository. The amendment also imposes reasonable restrictions on online authentication using Aadhaar. Now, such authentication can only happen if mandated by a law enacted by parliament.
Lastly, the Data Protection Bill which is also on the cards will ensure that there is proportionate use of the data shared by a customer through Aadhaar. The data shared by you cannot be put to any other use than the purpose for which it was collected.
It’s the only way
There are nearly 130 crore Indians today. More than 100 crore of them have either Aadhaar or a smartphone or both. By the most optimistic estimates, only about 70 crore Indians practice some form of savings through bank, post offices, Jan Dhan accounts, and payment banks.
The government must help bring the excluded – the remaining 60 crore – under the ambit of formal institutions of finance for their own benefit and removing the financial inequalities. But this would not be possible by setting up more branch offices, nor would it be enabled by manually verifying each customer application made with paper.
Those applications will have to be filled digitally, signed digitally, and processed digitally. Aadhaar, with its ability to authenticate identities as well as help customers e-sign applications, is the best way today to make this digital pipe dream possible. Without it, financial inequalities may remain. Ultimately, financial inclusion is also a democratisation process.
Customers prefer voluntary use of Aadhaar
We have seen that given a choice, customers will prefer to complete their paperwork digitally rather than meet the bank face-to-face. Knowing that they can voluntarily use Aadhaar, and with the assurance that their data will not be misused, more customers will prefer to use Aadhaar for instant, online, paperless, presence-less authentication.
In its recommendations, the Honourable Supreme Court has allowed the voluntary use of Aadhaar where such use is mandated by law. But do people personally prefer the Aadhaar mode? In December, we learnt that Aadhaar-linked transactions in rural areas have sharply increased since the verdict. These transactions valued around Rs. 6,000 crores in November 2018, up 18% from Rs. 5,138 crores in September 2018.
India is blessed today with a world class digital infrastructure in IndiaStack, e-NACH, Aadhaar and DigiLocker. It needs to be leveraged for banking to be democratised and reach every Indian, and for that, Aadhaar is the best way forward.
(Written by Parag Mathur, General Cousel of BankBazaar.com)
