An Aadhaar biometric identity card, issued by the Unique Identification Authority of India (UIDAI). (Photographer: Dhiraj Singh/Bloomberg)

Fintech Firms Petition UIDAI To Clear User Validation Glitch

Two-dozen financial technology companies have urged India’s Aadhaar database authority to continue providing services for validating millions of their users after some of them found that agencies that provide verification services were blocked.

In a petition, companies called upon the Unique Identification Authority of India to ensure that services “continue to be reliably available, through a simplified process to all, so that residents of our country are empowered with a verifiable digital identity, which they can use at will.” Among the signatories are PhonePe, the payments app of India’s largest online retailer Flipkart Ltd.; PayU India, a payments gateway; and MoneyTap, an online lender. BloombergQuint has obtained the copy of the letter.

“The conundrum we have is that one regulator (the central bank) has made KYC (know your customer validation) mandatory, and the other regulator (UIDAI) is denying access to the existing e-KYC infrastructure in the country. There is a lot of confusion,” Sameer Nigam, founder of PhonePe, said over the phone. The company has completely stopped user validation for a week now, he said.

The fintech industry in India received a boost after Prime Minister Narendra Modi outlawed old high-value currency bills in November 2016. That encouraged cashless payments and the number of users of such companies spiked. Reserve Bank of India’s rules make it mandatory to validate the authenticity of users. That’s where the world’s largest biometric identification database made life easier for them. They rely heavily on Aadhaar for seamless, cost-effective customer verification through KYC and authentication agencies.

“The reason for this petition is that we have millions of people stranded and it is physically impossible to do door-to-door KYC for each and every customer in the absence of the e-KYC,” Nigam said.

One of the founders of a fintech platform told BloombergQuint requesting anonymity that while verification using e-KYC costs around Rs 10-15 a user, physical verification costs Rs 100-150. The industry’s letter to the UIDAI highlights this concern.

The requesting parties [fintech entities] can use online authentication to validate these identities, thus bringing in the trust that is required in the transaction. This is significantly more privacy protecting and cost effective than the use of paper photocopies that were common before. As a result, it has enabled these businesses to service customers that they did not do earlier.
Fintech Industry Petition to UIDAI

Last week, Jitendra Gupta, founder of online payments firm Citrus Pay and managing director at PayU India, had also tweeted that the company was unable authenticate users as the UIDAI had stopped validation.

There has been no official communication yet from the UIDAI about any curbs on validating agencies. BloombergQuint’s emailed queries to the UIDAI remained unanswered.

The number of e-KYC verifications, however, has come down in the last one week, according to the data on the authority’s website. It averaged around 80 lakh transactions a day, down from 1.28 crore earlier.

That comes when a clutch of petitions challenging the validity of Aadhaar and its use for obtaining public services are being heard by the Supreme Court. Recent reports about unauthorised people allegedly gaining access to the database only added to privacy concerns. The UIDAI had decided to add facial recognition and a virtual ID to make the database secure.

The co-founder quoted earlier who didn’t want to be identified said the problem with e-KYC is likely to persist until the transition to virtual identification is not complete.

The fintech industry’s letter asked the UIDAI to take the criticism constructively. “We call upon the UIDAI to take from the criticism that which can be used to improve their services, ensure better consumer data protection while ignoring the noise.”