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Aadhaar And Indian Fintechs - An Unfortunate Tryst

Indian FinTech companies need to and will move on to other solutions as a dependable KYC Tool to continue the journey of reaching out to the Indian masses.

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UIDAI has asked the school authorities and their managements to ensure that no child is denied admission for lack of Aadhaar.

According to NASSCOM, the Indian FinTech ecosystem that has grown exponentially over the last decade is poised to register an estimated transaction value of $73billion by 2020 & slated to register a 22% CAGR over the next half-decade. While traditionally employing an offline model, FinTech enterprises have recognized the need for an ‘online’ presence to garner a larger customer base and are gunning for faster adoption by virtue of speedy transactions and reduced service costs without indulging in lengthy paperwork enabled by online transactions. Understandably, a major chunk of the traditional offline model’s paperwork involves verification of the customer’s personal and financial details through different sources and documents. 

When the Government of India formed the UIDAI and officially launched the 12-digit unique identity ‘Aadhaar’ number more than a decade ago, it had envisioned it to be a robust system for  consolidation of both biometric & demographic data of every individual and enable targeted delivery of financial subsidies, benefits and services through the Aadhaar Act. Through the provisions of the Act, FinTech companies could benefit from this verified & unique data source to complete KYC process for an onboarded customer in a fraction of the time it would take through the offline model. Additionally, they could verify geographic and personal details of the customer as well without resorting to verifying other documents like Passport, PAN Card etc which had been the norm before the Aadhaar came into existence.  

Despite its many benefits to the society and financial institutions at large, the Aadhaar Act was challenged by lieu of petitions filed in the Apex court of the country. This culminated in September 2018, when in a landmark ruling the Supreme Court upheld that the Aadhaar scheme was constitutionally valid. However, the Supreme Court struck down many provisions in the Act in an attempt to quell concerns raised over data privacy and hence restricted private companies from using the Aadhaar number for commercial purposes. 

After a period of confusion over the extent of the restriction and its applicability, it was deemed that private companies could no longer insist on using the Aadhaar number as a source for e-verification. Despite the relief by way of an ordinance passed by the President of India in February 2019 which once again allowed private companies to access Aadhaar information, FinTech companies are consciously moving away from relying on Aadhaar solely, especially in the light of fresh petitions being filed against the Act and the implications of any rulings passed by the SC post hearing these petitions. Even Banks are restoring the manual KYC Process that was adopted earlier due to the uncertainty over the Act and its applicability for companies.  

There is no doubt that Aadhaar is a powerful & verified data source and can be a formidable tool for building robust and efficient business models in the financial industry. However, in spite of the efforts taken by the Government to let private businesses and institutions use the database compiled by the UIDAI using Aadhaar, the continuous battle that the Aadhaar faces ahead has pushed such institutions to seek and develop alternate Technological solutions for Identity verification and KYC processes. Some of these solutions include biometric liveliness checks using AI and digital imaging technology available in mobile devices and triangulating data from different sources like PAN, Passport etc. in order to sufficiently substantiate the details provided by a new customer to complete the onboarding process

So in an anti-climax of sorts, after being the largest biometric exercise the world has seen, the Aadhaar seems relegated to being used by Government agencies only and seems to be slowly but surely shunned by financial technology institutions in favour of other less legally mired technological solutions. Unless there is a fast closure of pending legal petitions and complete clarity on the provisions and applicability of the Aadhaar Act, it is but certain that Indian FinTech companies need to and will move on to other solutions as a dependable KYC Tool to continue the journey of reaching out to the Indian masses.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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FinTech aadhar card KYC Customer Acquisition

Rajendra Awasthi

The author is Co-founder, EPIKInDiFi

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