Digital Payments

Aadhaar Enabled Payment System: Making Payments Simpler

Aadhaar Enabled Payment system

We have witnessed a number of changes in the way we bank. We are discussing one of those methods in this article, i.e., Aadhaar enabled payment system.

What is the Aadhaar enabled payment system?

It is a system developed by the National Payments Corporation of India that permits people to do financial transactions on a Micro-ATM by furnishing their Aadhaar number and verifying it with fingerprint or iris scan.

This method empowers people belonging to all sections of society to access banking and financial services through Aadhaar. It allows a person to transfer funds, make payments, deposit cash, etc. As the system operates on a centralized server, people can send money from their account to another account regardless of the bank in which the receiver’s account is operated.

It can also upgrade security as, under this process, there is no need to furnish bank details while carrying out transactions, and fingerprints of the account holder would be required for authorizing the transaction.

What are the benefits of Aadhaar enabled payment system?

The benefits of this system are numerous, and some of them are as mentioned below:

Aadhaar Enabled Payment system
  • Safe and secure payment method

This method is safe as fingerprint is required for transaction authentication.

  • Interoperable across various banks

Banking correspondents of one bank can perform transactions of other banks as well.

  • No need to carry debit or credit cards

Users using this method for payment don’t require to furnish their debit or credit card.

  • Serves the underbanked

With this method, the underbanked sections of the society can be served.

  • Simplified procedure
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With this method, the only information needed to initiate a transaction is the Aadhaar number and biometric information.

  • Payment of many government schemes

This channel eases the payments of many government schemes such as Social Security Pension[1], NREGA handicapped Old Age Pension, etc. of Central or State Government bodies by way of Aadhaar Authentication. 

What are the services offered by Aadhaar enabled payment system?

People can avail a number of services through this system like the following:

  • Cash withdrawal;
  • Cash deposit;
  • Balance inquiry;
  • Aadhaar to Aadhaar funds transfer; and
  • e-KYC

How to use this system?

The process of using this system is simple. It includes the following steps:

  • Go to a banking correspondent;
  • Enter the Aadhaar number in the PoS machine;
  •  Select the kind of transaction that you wish to make like cash deposit, withdrawal, fund transfer, balance inquiry, etc;
  • Choose the name of the bank;
  • Enter the transaction amount;
  • Authenticate your transaction with your biometric, i.e., fingerprint or iris scan; and
  • After the completion of the transaction, collect your receipt.

What was the purpose of launching this Aadhaar enabled payment system?

The government wanted to bring all citizens into the banking framework. However, it is tough to open bank branches in all remote villages. Therefore the government came up with this method where people from far off places would be easily able to send or receive money and avail of other banking facilities through micro ATMs and banking correspondents.

Also, considering the fact that it provides a safe mode of banking, this type of facility was launched. As stated earlier, transactions done through this method need biometric authentication through fingerprint/ iris scan. Therefore it is much safer than other methods. For example, physical signatures can easily be forged, but with a fingerprint/iris scan, it is not possible.

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Various payments banks have adopted this method. In the next segment, we look at one of the banks that have adopted this.

Paytm Payments Bank enables banking services through Aadhaar Card

Recently Paytm Payments Bank Limited enabled banking services through Aadhaar by integrating with the Aadhaar enabled payment system. In a statement, it said that its customers could access to basic banking services like cash withdrawal, balance inquiry, and obtain a mini statement through a business correspondent of any banking and financial institution.

It further added that features such as cash deposit and interbank fund transfer would also be made life that will benefit people in rural areas and semi-urban areas.

The Paytm Payments Bank has also partnered with more than 10,000 business correspondents who shall have access to a BC app for facilitating Aadhaar enabled transactions. The bank plans to add more correspondents to its network who shall serve customers of other banks.

It may be noted that the maximum amount is limited to 10,000 rupees per transaction. In case of cash withdrawal, the monthly limit is 50,000 rupees or ten transactions, whichever is reached earlier. Aadhaar enabled system is free for all customers of Paytm Payments Bank. The CEO and the Managing Director of Paytm Payments Bank said in a statement that with this channel, they are aiming to accelerate the financial inclusion in the country and also ensure that people in the remotest part of India are able to access banking services.

Points to remember while using Aadhaar enabled payment system

Before you use this new payment method, you must take note of the following points:

  • If you wish to use this feature then make sure that your bank account is linked with Aadhaar;
  • It may be noted that in case you have more than one account in one bank, only the primary account would be used under this payment method;
  • In order to make transactions through this payment channel, there is no requirement of any OTP or PIN;
  • This new payment method supports transactions between Aadhaar linked bank accounts only;
  • You can link multiple bank accounts with Aadhaar to avail of this facility, but for availing this facility, only one account per bank can be used; and
  • The cut off time for transactions through this payment method stands at 11 pm every day, and all transactions before this cut off time for the day are counted in settlement of that day.
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The Reserve Bank of India has not capped the limit for transactions made through the Aadhaar enabled payment system. However, many banks have placed a cap on the transactions made through it in order to mitigate the misuse of the payment system.

Read our article:Understanding the Concept of Statement of Financial Transaction (SFT) – Annual Information Return (AIR)

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