UIDAI asks digital payments companies to stop offering Aadhaar-based services

After telecom companies, the Unique Identification Authority of India (UIDAI) is turning its focus on digital payments companies, asking them to submit action plans to stopping usage of the Aadhaar database for customer authentication. The Aadhaar-issuing body has written to several payments companies, asking them to stop offering any Aadhaar-based service on their platforms and provide confirmation of the same, the Economic Times reported. "Since your organisation can no longer use Aadhaar-based authentication services...you may cease all operations with respect to Aadhaar-based authentication immediately, if not already done," the letter sent on October 12 stated.  This is in line with the Supreme Court's September ruling that private companies can no longer use Aadhaar data.

Furthermore, the central authority has asked these companies for "an action plan/exit plan for exiting the Aadhaar ecosystem which shall include without limitation the aspects enumerated under Regulation 23 (2) of the Aadhaar (Authentication) Regulations, 2016". A clutch of private players, including PayPoint, Eko India Financial Services and Oxigen Services, have received such notices from UIDAI in the last two days.

Citing sources in the know, the daily added that the UIDAI has only written to non-banking companies licensed to provide prepaid payment services - banks and payment entities like Paytm that have obtained banking licences have not received such notices.

Experts claim that the UIDAI's firm stance will affect last-mile remittance and digital payments that are the main business for these companies. Several of the companies that received UIDAI's notice serve rural consumers or the urban poor reliant on remittances. Significantly, for these demographics, Aadhaar serves an identity document in the absence of proper proof of residence and income.

"Remittance shoots up during the festival season but this year there will be a huge blow for the digital payments industry as business will be directly affected," Ketan Doshi, managing director of PayPoint, a Mumbai-based remittance company, told the daily. Moreover, consumers unable to send money home through wallets will end up bearing the burden of GST, which will be levied on transactions through banking channels.

According to the daily, private banks, which have been slapped tax notices by GST authorities for income from remittance services, will pass it on to their retailers. The latter, in turn, are expected to pass on the cost burden to consumers. In the meantime, fintech firms and banks are busy looking for alternate methods for digital KYC [know your customer] to onboard customers and are seeking guidance from the regulator for the same. "Till the time new laws are framed, the UIDAI may be developing offline verification processes so that fintechs can continue onboarding customers for their various services," Vivek Belgavi, fintech leader at PwC India, told the daily.

UIDAI CEO Ajay Bhushan Pandey had taken to Twitter earlier this month to point out that private companies can still use Aadhaar-based offline verification of customers as the top court has not forbidden that. "They can use QR code, Paperless offline KYC to authenticate identity without hitting UIDAI server," he had tweeted.

In April, the UIDAI introduced a digitally-signed QR Code on e-Aadhaar - the electronic version of Aadhaar that can be downloaded from UIDAI website - that would contain demographic details of the Aadhaar holder along with a photograph to facilitate better offline verification of individuals. Besides, since it only boasts a cardholder's name, address and photograph, Bhushan said its equivalent to ration card or voter ID card as far as the court's ruling is concerned, and more secure to boot. However, the buzz is that not all stakeholders are convinced of its efficacy.

Edited by Sushmita Choudhury Agarwal