India unveils Aadhaar payment services

Country takes a major step toward financial inclusion with the launch of Saral Money, enabling the common man to open and operate an "instant" bank account through micro-ATMs.
Written by Swati Prasad, Contributor

NEW DELHI--India's leading banks along with global financial services company Visa have launched a new payment initiative aimed at bridging the country's digital divide, and to provide millions of financially-excluded Indians a simple way to open a bank account and access financial services.

Launched here Wednesday by Delhi's chief minister Sheila Dikshit, Saral Money is a Visa "instant account" which is linked to an individual's Aadhaar number--a 12-digit individual identification issued by the Unique Identification Authority of India (UIDAI) on behalf of the government of India.

Five banks--Axis Bank, HDFC Bank, ICICI Bank, Indian Overseas Bank, and the State Bank of India--will offer Saral Money through their banking correspondents (BCs) across the country in a phased manner. BCs are individuals who work as bank agents in areas which do not have branches. A BC company manages these agents.

"Saral Money brings banking to the doorstep of the common man," Dikshit said at the media launch. "Once people get used to the adaption of Aadhaar and their rights under Aadhaar, the scenario in India will change dramatically."

Simplifying know-your-customer
Currently, customers have to provide numerous documents to fulfill banks' "know your customer" (KYC) requirements. With Saral Money, once an individual receives an Aadhaar card, he can secure a Visa instant account. In short, Aadhaar simplifies the KYC criteria. Consumers can also use the new service to pay any merchant that accepts Visa cards, make bill payments, recharge their mobile phones, and book tickets online.

Targeted at India's financially-excluded regions, Saral Money will support cash transfers for subsidies, scholarships, and other government disbursements. On their part, the BCs could partner local provision stores, post-offices, fertilizer shops, and so on, in villages to set up micro-ATMs. A micro-ATM is a handheld machine which costs around INR 15,000 (US$277) and is connected to banks. It allows customers to access their account from anywhere.

The first phase of the program will roll out in key parts of New Delhi and the National Capital Region, with the rest of the country targeted by end-2013. 

"I believe all government subsidies should be cashless," Dikshit said. As part of the pilot, the Delhi government will launch a food subsidy scheme for 2,00,000 families. To be launched Dec. 15, the scheme would cover vulnerable families. These households would be entitled to a monthly financial support of INR 600 (US$11), which will be transferred directly into the bank account of the family's senior-most female member, Dikshit said.

Increasing transparency, reducing corruption
Black money, fraud, and corruption are huge problems facing India. In the long-term, Saral Money could help the Indian economy be less dependent on cash. "There are several benefits of a cashless payments system," Uttam Nayak, India and South Asia group country manager for Visa, said at the event. "It brings about transparency, improves efficiencies, and reduces costs and frauds."

UIDAI has enrolled 210 million people in India and is targeting to have 600 million people under Aadhaar by 2015. It  has been working on financial inclusion for quite some time. In January, the UIDAI launched a micro-ATM device which enables beneficiaries with Aadhaar to withdraw money near their doors through the core banking system. The beneficiary puts his finger and Aadhaar number into the micro-ATM wireless device and receives the money within 8 to 9 seconds from a BC after verification.

Platform for innovation
Nandan Nilekani, chairman of the UIDAI, wants to make Aadhaar a platform for innovation. "We want to use innovative applications with an open architecture that can support PCs, tablets and smartphones of all kinds," he said at the press conference.

According to Nilekani, in the first phase, Saral Money would help people get a bank account, withdraw and deposit money, check their bank account balance, and transfer money to other accounts. "In the second stage, we hope to offer loans, insurance products, mutual funds, and so on, to people who are financially-excluded today," he said.

BCs can roll out other products to Aadhaar cardholders. "Saral Money is a platform that has the potential to fundamentally transform the way to achieve financial inclusion," Nilekani said.

Swati Prasad is a freelance IT writer based in India.

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