Financial firms and telecoms in India wrestle with new Aadhaar authentication rules

Fintech and mutual fund companies cannot authenticate customers with their Aadhaar account, banks would like to continue doing so, and at least one telecom is unsure how to deliver timely service in some areas without it, as private companies work through the fallout from Aadhaar rule changes made by India’s Supreme Court last month.

With the Supreme Court decision that Aadhaar could not be required by private entities, uncertainty has struck the financial and telecom sectors. The Economic Times reports that an unnamed major telecom operator in the country has written to the Unique Identification Authority of India (UIDAI) ahead of the deadline earlier this week to submit an alternate plan for authenticating users, requesting additional time to work out an acceptable system. The operator told the UIDAI that reverting to paper verification would be costly, result in service delays, and would create security challenges.

A source told the Economic Times that while activating customer accounts through Aadhaar took less than five minutes from anywhere in the country, the legacy paper system took two to three days to activate an account in a rural area.

Vodafone Idea, Bharti Airtel, and Reliance Jio Infocomm, three of the largest telecom operators in India, have all submitted their plans to the UIDAI, Inc42 reports. All three are reported to have expressed concern over the financial burden of the sudden switch, and at least one is reported to have complained that previous e-KYC investments will be wasted if Aadhaar authentication is not part of the new system.

The UIDAI has directed non-bank financial entities, including fintech companies, to stop using Aadhaar and delink the 12-digit ID number from their customer database, the Times of India reports. Banks have asked the Reserve Bank of India (RBI) to allow them to continue accepting Aadhaar, and a representative of the Indian Banks’ Association (IBA) said that barring the use of the biometric ID could threaten micro-financing in the country.

“Discontinuation of Aadhaar-based e-KYC will significantly impact the business model and the vision of the government/RBI for setting up payments banks and small finance banks as this is the unique selling proposition and single most important differentiating factor from scheduled commercial banks,” the representative commented.

The IBA has asked for the rules in place prior to April of this year, when Aadhaar authentication went from voluntary to mandatory, be restored.

Mutual fund companies in India, meanwhile, have been given until October 20 to provide the UIDAI with written proof that they have discontinued the use of Aadhaar, and information about the alternative authentication system they are using, Mint reports. An industry source told Mint that mutual fund companies can use scanned images of paper documents to speed up the process, and will likely introduce some kind of video conferencing application to meet In-Person Verification requirements, but uncertainty remains over the KYC status of those who have already completed the process through Aadhaar.

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