Loopholes in Aadhaar-enabled payments (AePS) are putting poor people at risk of being swindled

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Loopholes in Aadhaar-enabled payments (AePS) are putting poor people at risk of being swindled

  • The AePS enables a person to withdraw money from her bank account anywhere in the country using a local “business correspondent” (BC).
  • A BC is an informal bank agent equipped with a biometric Point-of-Sale (PoS) machine — a kind of micro-ATM.


  • Aadhaar is a 12 digit number which works as an identity for everyone residing within the country supplying the details about the identity and the proof of the resident.
  • It is an individual identification number.
  • The Government of India authorises the Unique Identification Authority of India to issue the Aadhaar or the unique identity number.
  • Any people who lives in India and gets himself registered under the Aadhaar get his/her Aadhaar card via Indian Post.
  • A person can also download an E-Aadhaar from the Unique Identification Authority of India portal.
  • Aadhaar card procured from both these sources are equally valid.

Benefits of Aadhaar Card

  1. Identity Card: Aadhaar is a single identity card needed for availing the services. This has removed the complex process of documentation.
  2. Income Tax: Verifying the filed returns have become accessible since the introduction of the Aadhaar card. We can check our return by following some simple steps. This also helps an individual to cut down the documents required for manual verification. The method is cost and time savvy. An individual needs to log into the e-filing website of the Income Tax department using his PAN number. Link the same with the Aadhaar account, and here an individual can upload his Income Tax return form. While linking the Aadhaar with Income tax account, an OTP is generated that makes the entire process secure.
  3. Bank Accounts: The Aadhaar card replaces the multiple documents which were required for having a bank account. The banks do not require proof of all kinds if a person possesses an Aadhaar Card as this single rectangular card supplies the proof of identity and progress.
  4. Timely Pension: Providing n number of documents for verification every time is very difficult and time consuming for the senior citizen. By linking the Aadhaar with the Pension Schemes, the senior citizen will enjoy a timely pension every month.
  5. Online Passports: Aadhaar helps an individual to get a Passport within seven days. When a person applies online for a passport and attaches a copy of Aadhaar card, which is a proof of identity and address, will get an appointment from the Passport office within three days, and the process and dispatch will take seven days. This makes the process easy and less time-consuming.
  6. Digital Life Certificate: Aadhaar provides a digital life certificate to the pension holders, which has removed the problem of physically going to the bank and collecting a pension.
  7. Provident Fund: The Aadhaar card is linked with the provident fund account, which makes the take of disbursement of funds easy.
  8. Subsidies: Subsidies from LPG and other government subsidies can easily be transferred into an individual’s account by furnishing the Aadhaar Unique Identification Number to the Government. Every benefit of the government will easily be transferred directly to the respective bank accounts.

Limitations of Aadhaar Card

  1. Threat to Privacy: The handling of data is with the private companies, which might give the data to the foreign companies, which may lead to erosion of data and will defeat the privacy of the individual of India.
  2. Problems of Centralisation: The entire system of the Aadhaar is centralised, which might create problems of different issues for the government and people as a whole.
  3. Bank Transactions: The misuse of the bank transaction is very easy as the Aadhaar will be used in place of ATMs, debit, and credit cards. There will be an instance of forge transaction which will inflict loss on many.
  4. Difficult Usage: The population of India suffers from illiteracy, which does not understand the tricks of the Aadhaar card; therefore, they could not utilise the Aadhaar card in the full sense.
  5. Not a Proof of Citizenship: The Aadhaar is not proof of citizenship but proof of residence, and at the same time, it is used for getting essential documents like Passport.

Working of BC:

  • A BC is an informal bank agent equipped with a biometric Point-of-Sale (PoS) machine — a kind of micro-ATM.
  • If you want to withdraw, say, Rs 500 from your bank account using a BC, you just have to give him the name of your bank and submit yourself to Aadhaar-based biometric authentication (ABBA).
  • The BC will give you Rs 500 in cash, and his own account will be credited with the same amount. For this to be possible, your bank account must be linked with Aadhaar.
  • But what if the BC enters “one thousand rupees” in the PoS machine even as he gives you five hundred? In that case, one thousand will be debited from your account, and credited to the BC’s account, but you will only get five hundred — fraud! This is unlikely to happen if you are educated and alert.
  • You will ask for a receipt, and the BC will promptly give you the receipt generated by the PoS machine.
  • BCs, however, routinely deny receipts to poor people, if they demand one at all. As a safeguard, some PoS machines have a voice-over, but the voice-over is easy to disable.
  • There lies one major vulnerability of AePS.
  • Corrupt middlemen bribed school principals to obtain names of minority children and other information such as the school’s Unified District Information System for Education (UDISE) code and login.
  • They submitted scholarship applications on behalf of the children after opening Aadhaar-linked bank accounts for them using a local BC.
  • Children were given nominal sums of money and the rest was siphoned off without their knowledge.
  • This was made possible by AePS.
  • Had children been required to collect their scholarships from bank premises, they would have learnt the correct scholarship amounts from their passbooks, if not from a bank employee.
  • The scholarship scam in Jharkhand shows that AePS-enabled fraud is not a sporadic problem but a systemic vulnerability.