Wednesday, August 13, 2014

RuPay cards to replace Aadhaar in welfare scheme authentication

NEW DELHI: The finance ministry has decided to limit Aadhaar's role in its welfare scheme payments and, instead, use ATM-enables RuPay cards for last-mile authentication to withdraw money.

Rejigging India's existing ATM network to make it Aadhaar (& biometric) ready would be expensive, experts said. There is another reason why some banks want to retain authentication with them — UIDAI wants to charge for its authentication service.

While it will continue to use Aadhaar for opening accounts and to eliminate ghosts and duplicates from beneficiary rolls, the ministry has decided to give RuPay ATM cards with bank accounts being opened under to-be-announced financial inclusion drive, Sampoorn Vittiyea Samaveshan, government officials told ET.

"We do not want that an account holder should be restricted on a particular technology platform. By providing RuPay powered ATM card the account holder can transact on multiple platforms," a senior finance ministry official said on the condition of anonymity. This is a large blow to the Unique Identification Authority of India (UIDAI) which has, till now, regarded authentication services as one of its principal functions.

Government welfare payments were seen as one of the biggest potential revenue streams for Aadhaar. Vijay Madan, director general at UIDAI, did not respond to an ET email about the impacts of this development as of press time. Puneet Chopra, associate director at Lucknow-based financial inclusion think-tank Microsave, said, "Selection of RuPay card means authentication will be PIN based."

Several reports from field have said that online biometric authentication is not working for manual labourers and the old. UIDAI had notified handheld device specifications all business correspondents (BCs) need to follow. This was, however, opposed by BCs using different technologies such as smart card-based biometrics or no biometrics at all.

Abhishek Sinha, the founder of Eko, a mobile based banking provider, had told ET at that time: "Different villagers might be more comfortable authenticating their identity through a card, a phone, a fingerprint or a numeric code. The network should be able to accommodate all those options, and leave room for innovation."

RuPay cards to replace Aadhaar in welfare scheme authentication

With the latest development, Aadhaar will be used to identify bank accounts of beneficiaries, as both bank and government databases will be seeded with the Aadhaar number. However, once the cash flows into the Aadhaar-linked bank account, last-mile authentication when the money is being withdrawn will be done using the authentication systems of either the relevant bank or last-mile service provider such as BCs or a cellphone company.

MS Sriram, visiting faculty at IIM Bangalore's Centre for Public Policy, said it is a good idea to use Aadhaar only for seeding. "Linking bank accounts with Aadhaar number will help the government eliminate ghosts and duplicates from beneficiary lists," he said.

Also, rejigging India's existing ATM network to make it Aadhaar (and biometric) ready would be expensive, experts said. There is another reason why some banks want to retain authentication with them — UIDAI wants to charge for its authentication service.

"Cost of Aadhaar authentication is an issue, even if the cost is kept at just 25 paise per authentication," said Sanjay Kuberkar, founder of Adrenaline Financial Inclusion Advisors. "There is at least one client bank of mine who is considering to use their own biometric authentication method instead of Aadhaar because of the cost implications," he said.

Friday, August 8, 2014

Will PM Narendra Modi's financial inclusion plan use Aadhaar for authentication?

In less than two weeks, PM Narendra Modi is expected to announce a new Financial Inclusion drive.
However, even as the anointed day - the 15th of August - draws near, key aspects of this drive are still unclear.

 

The programme, called Sampoorn Vittiyea Samaveshan (SVS), seeks to add 20 crore new bank accounts. These will be linked to Aadhaar. They will probably provide an overdraft facility. And they will be used for cash transfers.

Go deeper into the details, however, and you encounter a set of unresolved questions. Prime among them, the role of Aadhaar.

While researching this story, ET reviewed two drafts produced by the Department of Financial Services - one in June, and the second in July. The draft dated 8 July, 2014, says: "This account would be linked with the Aadhaar number of the account holder and would become the single point for receipt of Direct Benefit Transfers (DBT) from Government/Local Bodies."

According to a source close to the UIDAI, who spoke to ET on the condition of anonymity, this phrasing suggests that while Aadhaar numbers might be seeded into bank accounts, it might not be used for authentication.

In other words, once the cash flows into the Aadhaar-linked bank account, last-mile authentication when the money is being withdrawn will be done using the authentication systems of either the relevant bank or the last-mile service provider - like a Banking Correspondent (BC) company.
Not using Aadhaar for last mile authentication has significant fallouts for the UIDAI. Which, among other things, has the Aadhaar-enabled Payment System as one of its key components, and sees authentication services as one of its principal functions and revenue streams.

Till now, the UIDAI has argued that Aadhaar-based authentication is needed to show that the DBT (Direct Benefit Transfer) has indeed reached the targeted beneficiary.

However, from the field, this claim has been marred by persistent reports that online biometric authentication is not working for manual labourers and the old. Agrees Sanjay Kuberkar, The founder of Adrenaline Financial Inclusion Advisors, "The biometrics do not always work."

Another reason the UIDAI wants Aadhaar-enabled authentication is because that will further inter-operatability. A person can use her biometrics to access her account through any BC, any bank.
Says the source close to the UIDAI, "If banks or last-mile providers use their own proprietary (biometric) authentication technologies, then there will be no inter-operatability." In other words, a person with an account in United Bank may not be able to use a BC working with State Bank of India to access his account.

This is where the debate gets complex. Aadhaar has defined standards for Micro ATMs and Biometric Capture. Banks and BCs adhering to those standards, with BCs who have plugged into the bank's core banking servers, can send authentication queries all the way to the UIDAI's central ID repository. In this design, a beneficiary can access her account through any service provider if they are Aadhaar-compliant.

But, banks too have been creating their own biometric databases. And the question is whether authentication requests where one bank sends one biometric authentication query to another bank can be as interoperable as the Aadhaar ones.

Under former DFS Secretary DK Mittal, the department ran such pilots in Haryana. These too were online biometric authentications but the biometrics were stored with the banks. But those, says the UIDAI source, failed.

However, another way to ensure interoperatability is to use PIN numbers instead of biometrics. It is here that a proposal in the SVS documents is interesting. It proposes that all account holders be provided with a RuPay card. Says Kuberkar, "The card works at any ATM, and does not require biometric authentication."

Counters the UIDAI source, "Biometrics are safer than PIN numbers.

In contrast, PIN numbers can be used also by those who have trouble with biometrics.
There is another reason why some banks want to retain authentication with them. Aadhaar was planning to start charging for authentication. A decision which has now been deferred to December.
Says Kuberkar: "Cost of Aadhaar authentication is an issue, even if the cost is kept at just 25 paise per authentication. There is at least one client bank of mine who is considering to use their own biometric authentication method instead of Aadhaar because of the cost implications."

What does this seeding/authentication debate mean for reducing leakages? According to MS Sriram, visiting faculty at IIM Bangalore's Centre for Public Policy, it is a good idea to use the Aadhaar number only for seeding. "Linking bank accounts with the Aadhaar number will help the government eliminate ghosts and duplicates from beneficiary lists."

Such a move, he says, also addresses the concerns around biometrics not working and privacy. "Using Aadhaar only for seeding also takes care of some privacy-related questions. A trail of a person's movements will not be available any longer at the central server."

About ten days ago, the Department of Financial Services (DFS) was expected to present an updated iteration of SVS to the Prime Minister. This was shortly after he reposed his faith in the UIDAI project. It is yet unclear what transpired in that meeting. The documents in the public domain pre-date that meeting. Emails to DFS officials seeking an appointment went unanswered.

However, based on conversations with UIDAI officials and Banking Correspondent (BC) companies, it seems there is little clarity on this question on how Aadhaar will be used.

BMB rolls out RuPay debit card


 Bhartiya Mahila Bank (logo).jpg

Bharatiya Mahila Bank (BMB) has launched BMB RuPay debit card with an EMV chip. The card was launched by Usha Ananthasubramanian, Chairperson and Managing Director, BMB, in the presence of AP Hota, Managing Director and CEO, National Payments Corporation of India (NPCI), in Mumbai. EMV chip technology is becoming a global standard for credit card and debit card payments. It is named after its original developers — Europay, Mastercard and VISA.

Bharatiya Mahila Bank (Hindi: भारतीय महिला बैंक) (BMB) is an Indian financial services banking company based in New Delhi, India.Former Indian Prime Minister Manmohan Singh inaugurated the system on 19 November 2013 on the occasion of the 94th birth anniversary of former

Indian Prime Minister Indira Gandhi. Although initially reported as a bank exclusively for women, the bank allows deposits to flow from everyone, but lending will be predominantly for women. India is the third country in the world to have a bank especially for women, after Pakistan and Tanzania.
The bank has been criticized as adopting a segregational approach to gender equality. Uma Shashikant of the The Hindu writes:

Women-only banks are another instance of wanting to treat women ‘differently’. We guise this in many forms, some in garbs of reverence, some as protection, but they are all forms of discrimination that promote gender-based stereotyping. Women-only organisations stem from this eagerness to patronise women in the name of preferential treatment

Not sharing client data, says NPCI

MUMBAI: National Payments Corporation of India - Reserve Bank of India's brainchild which manages the backbone of the country's payments systems - has been asked to pay a token fine of Rs 10,000 to the Maharashtra treasury for passing on highly sensitive personal data to processing companies without a non-disclosure agreement. NPCI has contested the order by the state government's principal secretary (information technology) denying both charges - of compromising individual personal data and of not having non-disclosure agreements.

The adjudicating officer's order was in an intellectual property rights tussle between two companies that processed card transactions for banks. CredenTek Software, an IT company, had complained against In Solutions Global (ISG), which specialized in processing card transactions for banks. NPCI came into the picture as it emerged that it was one of ISG's major clients.

"We had filed a case against In-Solutions Global for source code violation and as part of our evidence we had submitted CDs containing sensitive personal data of bank customers which was handed to our clients by ISG," said Prashant Mali, Cyber Law & Cyber Security Expert from Mumbai who represented CredenTek for this case.


Hearing both sides, the adjudicating officer - Rajesh Aggarwal, principal secretary (information technology) - said in his order that no case is made out of data theft or source code stealing under the IT Act and it is a dispute regarding contracted services not being rendered rather than a copyright issue. While he dismissed the source code, he said that during the course of hearings, "a more sinister crime of negligence under the IT Act came to light" and expressed shock that real data of bank customer transactions was passed on as sample data for testing software rather than simulated data.

When contacted, NPCI said it does not share any confidential information with any party and has strong privacy policy based on international standard and its and has been awarded certificate for this. NPCI said its electronic clearing and settlement system was "safe and highly secure". and was compliant with Payment Card Industry Data Security Standards. NPCI said it has entered into a non-disclosure agreement with In-solutions Group, which has been filed with the application before the IT secretary of the Maharashtra government - the plea has not been disposed of so far.

"The order passed by the IT secretary against NPCI was without jurisdiction and ultra vires and beyond the powers. There was no proceeding initiated by the IT secretary, government of Maharashtra, against NPCI under any law. Even no notice was issued by IT Secretary before issuing order for payment of penalty. NPCI has already challenged his order as soon as it came to knowledge of NPCI by filing an application for review application," it said in a statement.

NPCI, which manages the ATM switch, Rupay and other payment networks such as IMPS that allow electronic funds transfers between banks, has been upset at the strong remarks made by the adjudicating officer without being heard. In the order, the adjudicating offer had said what was "more worrisome" was that NPCI is also running the Aadhaar Payment Bridge System, which includes Aadhaar number (UID) of the customers. Now, UID number is perhaps the most sensitive data of an Indian citizen, which needs to be protected even more than the Social Security Number (SSN) of USA, as it has linkage to biometrics (fingerprints and Iris). Obviously, UID number cannot be published on any website by any government department, and should be used for any Analytics or any other purpose, only with proper precautions as per Rules 6 and 7 of Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules, 2011."

MP govt to launch financial inclusion drive across state

This will ensure timely payment of wages and other compensation against various government-sponsored welfare schemes



To meet the total financial inclusion programme to be launched by Union government on August 15 this year Madhya Pradesh has geared up to launch its total financial inclusion drive in its all 51 districts. This will ensure timely payment of wages and other compensation against various government-sponsored welfare schemes. 

"The banking service area mapping has been completed in all 51 districts in Madhya Pradesh. The area of operation has been allotted for implementation of total financial inclusion (Sampoorna Vittiya Samavesh) to all banks in all districts has also been completed. Opening of accounts of Head of every household will commence from August 15 in camp mode," a senior government official said.

Every bank will prepare a monthly and quarterly calendar for holding camps in allotted areas and connectivity issue is to be informed to state level bankers committee. "The bank will have rights to shift the business correspondent, who will operate accounts, locations to the village within 5 km radius, where connectivity is available. If there is no connectivity in any of the villages, banks will have to explore to provide satellite connectivity through VSATs for those locations," the official said, adding, Ministry of Finance may be requested to reimburse the cost of the same to banks through the financial inclusion fund.

At least one account for every household in the country is mandatory, for the head of the household. Every household will have access to banking services within 5 km by September 2015 except hilly, tribal, forest and desert areas.

"The idea was floated by state government to provide banking services by bank branches within periphery of five kilometers," the official said. Under the plan Issuance of Rupay Card in accounts is to be encouraged. But the bankers will have to ensure that the card and accounts should not become dormant through motivating account holder to make card transactions.

"An overdraft limit of Rs 5,000 is to be allowed to the account after a reasonable period and after taking into consideration the saving or credit history of account holder," the official said.

Modi’s Financial Inclusion Plan - Rupay Card News

Who pays Who benefits?


One of prime minister Narendra Modi’s ambitious plans is the massive financial inclusion drive which envisages a bank account for 150 million Indians by August 2018. The idea of financial inclusion is not new—it has been the buzzword at the Reserve Bank of India (RBI) since 2005, but without much success. In fact, several thousand new bank accounts, opened under pressure from RBI, remained dormant or did not have a single transaction. Why will it be different this time? Well, Mr Modi reportedly proposes an overdraft facility of Rs5,000 for each account, besides a RuPay debit card with inbuilt accident insurance cover of Rs1 lakh. The overdraft will be backstopped by a Credit Guarantee Fund.

Had something like this been announced by the Congress government, it would have been immediately dubbed a loan mela or another subsidy scheme. But Mr Modi’s spectacular election campaign and the 12-year Gujarat development record have ensured that doubts and misgivings remain muted.

Financial inclusion and empowering the poor is a necessity. There is no doubt at all that the poor are forced to borrow at significantly higher rates, are badly exploited by moneylenders and also forced to pay more for all goods and services. When financial inclusion was attempted though micro-finance, it led to exploitation by rapacious micro financiers, insurers and others.

Will Modi sarkar succeed in getting the same government officials to deliver where others have failed? Will moneylenders not exploit the Rs5,000 overdraft facility for repayment of old borrowings? What will the Modi government do to prevent poor, unbanked, rural folk from blowing up the overdraft, as they usually do, on marriages and religious ceremonies and on liquor?

It is significant that KR Kamath, chairman of the Indian Banks Association, while talking about how bankers were working overtime on this project said, “More than being commercially viable, it is important to link every household with the banking system.” But what happens when the overdraft has been spent and there is a default in the books of our nationalised banks? It will not only be a cost to the exchequer, but all the householders, who were recently included, will be excluded from the system again. We will watch for answers, when the prime minister unveils his grand plan for financial inclusion from the Red Fort on Independence Day.

The second phase of the financial inclusion plan talks about a pension scheme for the lower income and unorganised sector and micro-insurance through the nationalised insurance companies. Premium for insurance products will come from schemes like the Rashtriya Swasthya Bima Yogana.

A catchy name, terrific tag line, nice logo and a marketing blitzkrieg is all very well, but we would much rather hear a discussion on how the Modi government has studied and fixed all the leakages and malpractices that prevented government-directed financial inclusion and insurance schemes from working.

Instead, all we are hearing from officials and bureaucrats, desperate to please a powerful prime minister, is about the spending and hiring spree (20,000 ATMs, 50,000 banking correspondents and 7,000 branches) planned to meet the ambitious targets.

Friday, August 1, 2014

The NDA’s ambitious financial inclusion plan

Mumbai/New Delhi: Bank accounts for every Indian and banking services within 5km of every town and village, and all by March 2016—that’s the ambitious financial inclusion plan Prime Minister Narendra Modi will likely detail in his Independence Day speech.

The NDA’s ambitious financial inclusion plan

Named Sampoorn Vittiyea Samaveshan (SVS), the scheme has been sketched out in a paper prepared by the department of financial services. Mint has reviewed a copy. In his budget speech, finance minister Arun Jaitley announced the National Democratic Alliance (NDA) government’s intention to launch a financial inclusion mission on 15 August that would provide banking services to all households in the country, and especially focus on women, small and marginal farmers and labourers. According to Census 2011, 59% of the 246.7 million households in India have access to banking services; 54% of the 167.8 million rural households in India have access to banking services, and 67% of the 78.9 million urban ones do. Jaitley will meet chiefs of state-run banks on Thursday to discuss the preparedness of banks to roll out the government’s financial inclusion plan, bankers and a government official said.

“The meeting is mainly to review how banks are gearing up for the rollout of the financial inclusion mission,” said the government official, who did not wish to be identified. The financial inclusion plan will look to provide universal access to banking facilities with a basic bank account with an overdraft facility of Rs.5,000 and a Rupay-enabled debit and ATM card with inbuilt accident insurance cover of Rs.1 lakh. “This account would be linked with the Aadhaar number of the account holder and would become the single point for receipt of all government benefits,” the paper said. Rupay is an Indian government initiative and the country’s own equivalent of Visa and Mastercard. Account holders will also receive financial literacy training sessions and, on completion of these training sessions, a Rs.5,000 overdraft limit.

 According to Reserve Bank of India estimates, 182 million zero balance accounts had been opened in India up to March 2013, but only 3.95 million of these availed overdraft facilities adding up to Rs.155 crore. The approach paper, dated 16 July, outlines six pillars upon which the entire programme will be based. The financially excluded should be provided universal access to banking facilities, the paper said. They should have basic bank accounts and should be provided microcredit, microinsurance and unorganized sector pension facilities, it added. The borrowers under this scheme will undergo financial literacy training, while the entire loan portfolio should be insured against a credit guarantee fund, with an initial corpus of Rs.1,000 crore, which will provide for defaults on such accounts, it said.

To achieve these objectives, the government is open to public-private partnerships while it will also tap into the existing national infrastructure of post offices and the future payments banks network, according to the approach paper. Various microcredit organizations will be allowed to compete with each other while the crucial role will be played by the business correspondents (BCs), or agents of banks who reach out to the last mile, offering simple credit and deposit products to customers. According to S.S. Mundra, chairman and managing director of Bank of Baroda, not all objectives have to be met by 2016 and the entire financial inclusion drive will be done in a phased manner, which should give banks ample time to prepare. “We already have 6,000 business correspondents, and they are doing a very good job. If need be we will hire more such BCs,” Mundra said, adding that banks’ own resources won’t be stretched much because the bank staff will largely play a supervisory role.

“This is not a big task because most of the job has already been done by banks. Accounts are being opened every day and by 2016, we will be covering every household of every village we have been assigned without any problem,” said M. Narendra, chairman of Indian Overseas Bank, which has about 3,500 BCs who are paid Rs.3,500 per month. In order to incentivize BCs, the paper proposes that remuneration for them be set at Rs.5,000. According to Rishi Gupta, chief operating officer and executive director of FINO PayTech, a banking correspondent service provider, the payment of Rs.5,000 is less than what it should be but still a welcome raise. “Government is acknowledging that providing last mile delivery involves a lot of expense and expertise.

 If you don’t incentivize the people who are involved in the last mile delivery, soon they will lose interest and any such financial inclusion plan will not fructify,” Gupta said. Technology will also need to play an important part in the government’s financial inclusion plan. For providing fully enabled bank accounts to the unbanked population, banks will have to ensure that every transaction is part of the core banking solution. Till now, most of these transactions were offline and not connected to the bank’s core banking network.

That could well address the issue of inactive accounts, said a bank official. “Unlike earlier, the bank accounts will be fully operational from anywhere, be it a bank branch, an ATM or a business correspondent outlet,” added this person who did not wish to be identified. “Transfer of money directly to beneficiary accounts under the direct benefit transfer scheme will also make sure that the accounts are active,” the bank official added.

The direct benefits transfer scheme envisages transferring directly to beneficiaries the money they are entitled to under government schemes. Funds will be transferred after a customer’s biometric authentication, either through Aadhaar-enabled payments system or the bank’s own servers. Aadhaar is a unique ID issued by the Unique Identification Authority of India that has thus far issued 650 million cards. To make it lucrative for bankers to open bank accounts and transfer funds from the government to beneficiary accounts, the government is considering paying banks 2% of the transaction amount for every transfer.

The government’s plan could also be a big business opportunity for technology providers. The department of financial services, in an advertisement, has asked interested technology providers to present their innovative ideas to improve the existing last mile connectivity. “The combination of bio-metric, smart cards and low-cost ATMs have not been successful in scaling up. Putting the responsibility on leading banks to adopt a region for financial inclusion hasn’t worked either.

The needle has not moved,” said Rama Vedashree, vice-president at software lobby body Nasscom. “The ministry of finance may be looking for new technology solutions to ensure the outreach of financial inclusion programme as the current technologies being used have not been able to do that.” “This may be an effort to find and understand the scope of new low cost technologies that can fast-track the process of financial inclusion,” she added. Once the mission is launched, its progress will be reviewed quarterly by the finance minister, rural development minister and the minister for communication and information technology. In addition, financial services secretary G. S. Sandhu will review the progress with bankers every month.