UBI Stops AePS Transactions On Devices Of Private Banks, Alleges Round-Tripping

Kolkata-based public sector lender United Bank of India (UBI) has stopped Aadhaar-enabled payment system (AePS) transaction for its users on devices installed by private banks such as IDFC Bank, IndusInd Bank, RBL Bank and YES Bank. UBI has accused the business correspondents (BCs) of these banks for round-tripping funds.

AePS allows customers mostly in in far flung areas to carry out transactions through a micro ATMs through the business correspondents of any bank using the Aadhaar authentication. It is mostly meant for those who are not comfortable with smartphones or debit cards.

The Economic Times quoted a public sector banker as stating that BCs were resorting to round-tripping of funds through the micro ATMs and earning commission for each transaction in the process.

Image source: United Bank of India

With the above in effect, now the user having accounts in the aforementioned private sector banks cannot do transactions through United Bank of India via AePS.

Responding to the UBI’s move, these private banks have reportedly written to the National Payments Corporation of India (NPCI), the nodal body for AePS transactions, and also forwarded the letter to Reserve Bank of India (RBI) seeking intervention.

It is to be noted that the April circular had revised the interchange fees for every AePS transaction at 1% of the transaction amount, with minimum charge of INR 5 and maximum of INR 15. However, NPCI in June held back the decision due to confronting issues around interchange fees (service fee that one bank pays to another) and sharing of costs arising from participating entities.

The existing interchange rates are 0.5% for every transaction and no charges for transactions less than INR 100. A share of this interchange goes as commission to the retail partner or business correspondent in the field.

Inc42 earlier reported, the bankers had shared that the proposal of 1% interchange fee for every AePS transaction was rolled back because that would help to acquire entities make money even for small value transactions

Some private bankers feel that UBI, instead of blocking AEPS transactions, should have first taken action against errant customers whose accounts are showing such transactions.

NPCI report released in June this year suggests AePS transactions doubled to 13.7 Mn in March from 6 Mn  in April last year. Banks such as Yes Bank, RBL Bank and IDFC Bank were leading the AePS volumes, along with the traditionally larger players such as ICICI Bank.