The problem with India, they used to say, is the sheer number of people who live there, who have no identity, no fixed abode, no surname, some people don’t even know their own date of birth. Banks faced great challenges when carrying out customer due diligence and the result was often the refusal of products and services to potential clients.
But this may be about to change. The second most populous nation on the planet with perhaps the most fluid and undocumented mass of people living in it has defied the odds on organisation and has successfully issued ID cards to 400m Indian citizens. Now that’s 400m out of 1.2bn, one third of the population. According to the Unique Identification Authority of India (UIDAI), the government department behind the scheme, there are 100m more applications being processed and by 2014, every second Indian citizen will be in possession of a unique identifying number which can be verified on a national database.
Aadhaar, the name given to the unique identifying program (UID), is a 12 digit code which serves as proof of an individual’s identity and address. The Aadhaar number given to an individual is valid for life and is authenticated by biometirc and demographic information which will be held on the Aadhaar database. An ID could be verified by using one time password sent to the user’s phone or via iris/fingerprint matching. Full details of the process, how it might work, the benefit and proposed security measures are on the UIDAI’s website.
This is good news for banks in India, who must follow the government issued ‘Know Your Customer’ rules and with varying degrees of success. Some KYC processes in place are overly onerous, place no trust in the individual collecting the information and often cause a duplication of efforts. When I banked with Citi in New Delhi, my signature was witnessed by a member of the bank’s staff and re-verified by a special signature checking department who gave the final ‘yay’ or ‘nay’ to transactions. All records and documents were bundled off to a storage center in Chennai, and irretrievable by customer facing staff. So, customers have to go through lengthy and unnecessary form filling processes for certain transactions, even if they are repeated and the bank already has the required information. The Aadhaar number will surely decrease some of this burden for Indian citizens, if not for us pesky foreigners.
Finally, the Aadhaar is really good news for any new payment products and services which are targeting India’s vast non-wealthy population with prepaid debit cards and mobile money accounts in a bid to include the ‘unbanked’ and ‘unidentified’ masses in the financial system. One of the biggest risks of issuing prepaid financial instruments or m-payment accounts is the unintended use which can stem from multiple accounts being controlled by one person. If a drug dealer, for example, controls several m-payment accounts, he will be able to circumvent the transaction limits put in place to stop, or at least hinder, financial crime.
Under India’s UID scheme, no one should be able to access more products or services than intended by they provider. In theory, if a woman in rural Bihar registers for a prepaid card account, her fingerprint will be recorded on the national database. When the provider carries out KYC, the Aadhaar database should tell them whether or not she has an account already.
Of course, like any transaction and ID monitoring system, Aadhaar will only be as good as the information provided, and the authentication system will need to be extremely robust to withstand a large amount of interrogations by different users. Nandan Nilekani, the founder of Infosys, is the head of the UID project – possibly the world’s biggest biometric ID scheme – and many put its success down to him. As proof of his popularity, he is being courted by the ruling Congress party, led by the Italian Sonia Ghandi and her son Rahul, who is the great-grandson of Jawaharlal Nehru, India’s first prime-minister.
As 400m Indians are already registered with the system since its launch in a tribal village in September 2010, a few weeks before the New Delhi Commonwealth Games. Unlike the CWG, the Aadhaar program has taken off and left its Indian and international critics wanting. Maybe 12 months from now, we will see a greater penetration of non-banking payment products and services and an increase in bank account use across India. Maybe the unique identifying number has cracked the financial inclusion conundrum for the world’s second largest population.
- Aadhaar card valid proof for opening bank account: Finmin (news.in.msn.com)
- Govt agencies can make Aadhaar mandatory in future, says Nilekani (thehindu.com)
- Aadhaar in entire Karnataka by March next (thehindu.com)
- Haryana fixes October 31 deadline for Aadhaar cards (dnaindia.com)