Aadhaar: An Enabler for Financial Inclusion

Unique Identification Authority of India (UIDAI)

www.uidai.gov.in

Perugia, Italy, 19th March 2013

Agenda

• Context of Unique IDs in India

• Features of UIDs (Aadhaar)

• Service Delivery Potential of Aadhaar

• Financial Inclusion Tools and Architecture

Context of UIDs in India

• Provision of a robust, reusable ID to those who do not have any ID proof

• To clean up existing databases through Uniqueness

• Improve Targeting and Delivery of Services

• Reduce cost of Delivery of Services

UIDAI’s Mandate

• To provide Unique ID Number to all Residents

– Enrolment is a one time process for the resident

– Establishes Uniqueness

• Provide online, cost-effective, ubiquitous authentication services across country

– Authentication is transactional

– Establishes identity

– Usually done at the time of availing a benefit

Features of Aadhaar

Only Numbers – No Smart Cards

Random Numbers – No Intelligence, No Profiling

Voluntary in nature

All Residents – Including Children

Uniqueness – Ensured through biometric attributes

No Guarantees to Citizenship, Rights, Entitlements

Ensuring Security and Privacy of Information

Ubiquitous Authentication – From No ID to Online ID

UIDAI issues unique IDs …

Property of UIDAI - Highly confidential 6

UID = 1568 3647 4958 6218

UID Unique number Random number

Basic demographic data and

biometrics stored centrally

Central UID database

Standardized identity attributes

No duplicates(1:N check)

Standard Know Your Resident

(KYR) process

Name

Parents

Gender

DoB

PoB

Address

… and authenticate IDs online, real-time

Property of UIDAI - Highly confidential 7

UID = 1568 3647 4958 6218

Central UID database

1:1 check, no ID fraud

Only YES/NO response, no details – no invasion of privacy

Person can see self-details, no one else can

Authentication - ‘Are you

who you claim to be?’

Name Address Gender Date of birth

1 person1 number

4 demographics + 3 biometrics = 1 unique Aadhaar number

Photo

Both

iris

10 finger-

prints

Aadhaar : An Online Authenticable ID

• Aadhaar is a pure ID (with no eligibility attributes) issued by the Government to all residents

• Identity platform for leverage by multiple applications

• Inter-operability is not an after-thought

• Portable Online ID can be used for Authentication anytime, anywhere

• As it is token-less and online, no fake IDs

• Authentication on basis of ‘who you are(biometrics) or what you know (OTP )’

• Provides usage audit trail

Progress Thus Far • Launched on 29th September 2010

• Issued 300 Million UIDs, Enrolled 350 million

• Launched Authentication in February 2012

• An large eco-system of

– Enrolment Agencies

– Certified Devices

– Certified Operators

– Application Developers

– Applications – Cash Transfers, LPG, PDS etc

Aadhaar Authentication at a Glance

= Yes **

OR No

*and/or – Single or multi-factor authentication

**Yes/No – Would enable service provider to take business decision

+ Demographics*

Name, Gender, DOB, Address..

One Time PIN*

Biometrics* 1:1 Match

1111 2222 3333

Extent of Financial Exclusion

• Only 30,000 habitations have banks (5%)

• Only 40% Population have bank accounts

• Life Insurance Cover < 10%; Non-life Insurance Cover 0.6%

• Debit Cards 13%; Credit Cards 2%

• Financial inclusion by state:

– Most financially included: Himachal Pradesh (45%)

– Least financially included: Bihar (10%)

• Financial inclusion by gender in rural areas:

– Women : 6% ; Men: 28%

• Urban vs. rural financial inclusion

– Urban: 32% ; Rural: 18% 12

Reasons of Financial Exclusion

13

• Low Coverage – only 5% Villages have banks

• High cost of operating small value transactions

• Lack of infrastructure

• Lack of suitable products

• Weak delivery models

• Perceived as a liability

We need a model which is secure, cost-effective, scalable,

easily accessible, inter-operable, sustainable, real-

time/electronic and which gives choice to the customers

Aadhaar platform for Banking

•Open Bank Accounts using Aadhaar – Sufficient KYC

•Existing Bank Account can be linked to Aadhaar number

•E-KYC is a paperless cost-effective KYC Access

•Transfer funds to Aadhaar Enabled Accounts

•Simplifies disbursal of funds – uses only one account for all disbursals – Convenience for the beneficiary

Address

•Withdrawal and deposit, check balance

•End to end auditability and traceability

• Inter-operable, portable anytime anywhere

•Better than local, non-interoperable solutions that limit choice

Transactions

14

4. Authenticate

2. AADHAAR number, money

transfer instruction, biometrics

Convenient cash withdrawal

Resident

BC with Micro-ATM

Ram’s bank account

BC’s bank account

Interoperable Switch

1. Withdrawal request

3. Forward to switch

6. Debit

7. Credit

8. Inform: Call / SMS

9. Cash

UIDAI

5. Authorize

15

Micro-ATM transactions

1. Handheld device and battery powered

2. Online connectivity through mobile network

3. Micro-ATM standards set by RBI and IBA (manufactured by multiple vendors)

4. Biometric scanners are certified

5. Interoperable devices and can work for any bank and any BC

Total online transaction time less than 15 seconds – Verified on the ground from Tripura, Jharkhand, Maharashtra, and Andhra Pradesh

16

UID-enabled FI addresses multiple barriers

Cost

Risk

Graduated learning

Scalability

17

• Standardized microATM

• Lower training cost

• Human operated

• Reduce cash management

• UID authentication

• Lesser fraud

• Real-time account update

• Online transactions

• Learning from BC operations

• Learning from POS/ATM

• Leverage both in microATM

deployment

• Large interoperable network

• Incentives for all participants

• Uniform customer experience

• Unified financial literacy drive

Common technology infrastructure across customer service points

Bank branches 70,000 today

85,000 by 2013

ATMs

45,000 today

100,000 by 2013

POS terminals

500,000 today

1,000,000 by 2013

MicroATMs

1,500,000 by 2013

Mobile, internet, phone banking

Any where, any time access

18

Innovations from the

lower end can migrate

to the higher end.

Example: cash transfers

Innovations from the

higher end can migrate

to the lower end.

Example: railway tickets

Technology can be used to drive inclusion

Solutions lower in the pyramid are more inclusive

FI has reached a tipping point

19

• Inclusive growth is a national priority

• Mobile connectivity is becoming ubiquitous

• Banks can leverage UID enrolment infrastructure to acquire customers and open bank accounts

• UIDAI offers real-time online authentication

• UID micropayments model is similar to the familiar POS/ATM world

• RBI has expanded the list of entities that can be BCs

• UID KYR as KYC lowers the cost of customer acquisition

• No trade-off between inclusion and security

• NPCI will deploy a UID-enabled inter-bank transaction switch

• Government to bear part of capital and operations costs

• Higher volume of direct cash benefits, announced in budget speech

Conclusion

• Aadhaar offers an inter-operable authentication platform which can be leveraged to deliver various services

• Aadhaar Enabled Payment System (AEPS) has been proved to be one such important application which will enable cost-effective payment solutions which are inter-operable, real-time and traceable

Thank You