It has been an interesting journey for Aadhaar from the time the first UID was issued in September 2010. We now have about 1.123 billion Aadhaars for over 99% of India’s adult population. Aided by various legislations proposed over the last couple of months and massively accelerated by the demonetisation and its after effects, Aadhaar is set to become perhaps the most important document that an Indian citizen can have.
A lot has been said and written about the payments landscape and how we see BHIM and the more recent Aadhaar Pay to alter all forms of payments. However, there is also a significant impact on the retail personal finance space–both on the conventional prime lending as well as small finance–to underserved segments. Let us look at the recent proposals and how it changes and aids this space in particular.
The following are the changes that have recently been proposed using the Aadhaar ecosystem:
- It has been proposed that Aadhaar should be mandatory for filing income-tax returns as well as obtaining and retaining one’s PAN
- The Ministry of Road Transport & Highways (MoRTH) has asked the state RTOs to make Aadhaar mandatory for new driving license issuance as well as renewals
- In a notification issued on 23rd March, the Department of Telecommunications (DoT) directed all mobile phone service providers to re-verify existing customers, prepaid and postpaid, using their unique Aadhaar identity number and bio-metric details. They have been told to complete the exercise by early next year.
The problem that is sought to be solved here is pretty clear – leverage the uniqueness of the Aadhaar number and plug and prevent duplicate identities, thereby leading to better enforcement by the relevant authorities.
Scratch the surface a little more and let’s see how this can impact retail lending. Let’s look at this through Joe’s experience, a common man who entered the urban working population a couple of years back and is interacting with the government and other service providers.
- Remembering one’s Aadhaar: Joe does remember and carry his PAN in his wallet, but does not remember his Aadhaar. Now he will need to quote his Aadhaar at least once a year during income-tax returns. Joe sees a compelling 25GB free data offer from a mobile service provider and wants to switch – he will need to quote his Aadhaar number again. Joe now knows that for a lot of stuff that he is going to use and consume, it’ll be necessary to remember his Aadhaar number.
- Updated Aadhaar: Joe wants to prove his identity using his Aadhaar. But when he had applied for his Aadhaar, he did not update his email ID or mobile number. When Joe ports his mobile number to the new service provider who is giving him 25GB data, he will ensure that his correct mobile number is linked to Aadhaar. This will ensure he can perform authentication using his Aadhaar for any service he wants to avail in future. (Considering telecom service providers are AUAs / KUAs in the Aadhaar ecosystem and are empowered to provide Aadhaar updated service, this is a good time to get the updating process enabled as a service during the verification).
- Availing financial products securely: Now, Joe wants to get his first car or buy a home for which he is shopping for finance options. There are different agents asking for copies of a large number of documents. Joe is a little worried – what if this agent / document pick-up guy makes a copy of his documents and misuses it? Can he avail the product without giving copies to this guy? So, Joe tells the lender that he will submit his documents digitally and will authorize the same using Aadhaar eKYC.
When Joe avails the financial product, here’s how this goes into the lending ecosystem for starters. Given there will be more on-boarding using Aadhaar eKYC, lenders will have more and more new Aadhaar seeded facilities. Thus, in turn, it means internal databases as well as the bureau will progressively start getting enriched at a faster rate. Thus lenders and bureaus which have traditionally leaned on PAN (which had issues of duplicates) will have a more water-tight mechanism to conduct better deduplication during the credit-buying process.
While this has been panning out, the Ministry of Electronics and Information Technology has also made a digital locker for storing documents a reality. With the Digital Locker Authority inviting applications from public and private entities to start operating digital lockers, it should enable and empower people to securely provide authentic documents for perhaps every area of service they wish to avail from public and private service providers.
With Aadhaar gaining prominence, the issue on security of information is another debated topic. I would think the key to this can be encapsulated in the following two points:
- Relevant checks in the ecosystem for enrolment of AUAs / KUAs that are in place today and further enhancement by bringing authentication devices (hardware) also into the ambit of the security infrastructure.
- Having a tight authentication process for establishing consent and ensuring the players in the ecosystem (AUAs / KUAs) adhere to the same.
Incentivising paperless transactions (financial & others) using the digital authentication mechanism actually gives the consumer better control of his / her data. It ensures that the consumer shares data only with explicit consent and the information gets digitally transferred to the service provider to whom the consent is provided. It is effectively eliminating paper copies and trails that are more prone to unauthorised reproduction and misuse.