Supreme Court’s Judgement On Aadhaar May Affect Aadhaar Pay

The Supreme Court judgement on Aadhaar case which stated that Aadhaar will not be mandatory for opening bank accounts might have an impact on Aadhaar Pay, a payment mechanism which enabled people to use their unique identity (Aadhaar) for digital transactions instead of their debit cards or other services.

Aadhaar Pay was launched in 2017 by Prime Minister Narendra Modi. It was a key element of the government’s financial inclusion and digital payments drive for those without credit and debit cards.

It was also aimed at promoting digital payments other places outside of the urban centres.

The system has two components — Bharat Interface for Money (BHIM) Aadhaar Pay and Aadhaar-enabled Payment System (AePS).

While BHIM Aadhaar Pay is a merchant app which is used to receive payments digitally from customers, AePS allowed users to withdraw or transfer funds and check account balances using biometric authentication through micro ATMs.

AePS was designed to especially help those who did not own a smartphone, debit cards or any other instruments.

However, as the judgement makes Aadhaar linking with bank accounts optional, the system of using Aadhaar Pay becomes voluntary.

Since its launch, there were 104.2 Mn AePS transactions for a total value of $3.62 Bn (INR 26,286 Cr) as of March.

Impact Of SC’s Aadhaar Judgement On Payment Industry

Under the verdict passed by SC on September 26, Aadhaar is now mandatory only for filing income tax returns and for the allotment of PAN. It won’t be necessary for opening bank accounts or getting SIM cards from telecom operators.

Further, Aadhaar-based authentication data should not be stored beyond six months. The current rule that it can be archived for five years has been struck down.

Keeping in mind, the concerns relating to consumer privacy, the SC had also struck down Section 57 of the Aadhaar Act which will take away the authority private companies to ask for people’s Aadhaar IDs.

Justice Chandrachud also instructed the telecom operators to delete all data they have collected from users.

According to Amit More, founder and CEO of Bengaluru-based peer to peer lending solution startup Finzy, this decision may have an impact on the “Fintech companies (including P2P lending platforms) such as digital banks, NBFCs, mobile companies and others who rely heavily on Aadhaar based eKYC verification and eSign for digital signature of documents”.

Bhavin Patel, co-founder, and CEO LenDEnClub had earlier told Inc42,  “The Supreme Court highlighted some of the flaws in Aadhar law due to which private companies have been barred from using Aadhar for identity verification. This may affect the fintech as well as other financial companies which uses the only Aadhar as their identity verification mechanism”.

Further, according to media reports, private entities like Reliance Jio and Paytm will now suffer certain problems in its business models as the eKYC process by private companies via Aadhaar has been removed.

Other Major Decisions Under Aadhaar Judgement

The Aadhaar Case hearings ran for 38 days making it second-longest hearing in India’s judicial history. Under the final verdict, some of the other decisions are:

• The provision under Aadhaar Act which prevented individuals from filing cases was removed
• Section 33(2), which permits the disclosure of Aadhaar data for national security issues was also struck down
•  Aadhaar IDs will not be mandatory for children to avail of midday meals or admission to public schools
• No person can be denied any government benefits on grounds of having or not having Aadhaar.

After a long wait, the Aadhaar decision still raises several questions and conflicts among many. People on Twitter have also pointed it out that the judgement is contradictory as even though Aadhaar IDs will not be needed for opening bank accounts, however, it’s has been mandated for linking PAN which turns essential for the opening bank accounts.

With this mixed reaction on the verdict, the consequences of the decisions are yet to be fully understood.

[The development was reported by ET]