Have you ever wondered how migrant workers in our states send money to their homes? They don’t visit their home for months. And often, they or their family members won’t have access to banking facilities.
To send money to their families, they use a revolutionary system empowering the unbanked and underbanked population in rural India – the Aadhaar Enabled Payment System (AePS).
In this post, let’s understand what AePS is and how it works. And delve into the transformative role of Micro-ATMs and Banking Correspondents (BC) in promoting financial inclusivity.
Estimated read time: 4 minutes and 34 seconds
Buckle up. Here we go!
What is the Aadhaar Enabled Payment System (AePS)?
AePS is a remarkable initiative by the National Payments Corporation of India (NPCI), designed to foster financial inclusivity by bridging the gap between traditional banking and the underserved population in rural areas.
At its core, AePS leverages the Aadhaar biometric database, which contains unique identification details, such as fingerprints and iris scans, of Indian residents.
By using AePS, individuals can perform banking transactions without the need for debit cards or PINs, making it accessible to even those with limited literacy in digital payments.
How does AePS work?
Imagine you live in a village where there is no bank branch nearby. You have to walk for over 5km to use the banking services.
But recently, your nearby Kirana store uncle collaborated with a bank to become their Banking Correspondent (BC). Now he has a Micro-ATM with him. Using Micro-ATM, he can offer basic banking services.
You visit the BC with your Aadhaar number and tell them you want to withdraw cash from your account. Here, your Aadhaar must be linked to your bank account.
The BC asks you to place your finger on the fingerprint scanner. The Micro-ATM matches your fingerprints with the biometric data stored in the Aadhaar database to confirm your identity.
Your fingerprints match the records in the Aadhaar database, and the Micro-ATM proceeds to withdraw the requested cash from your account. You receive the money from the BC along with a printed receipt.
That’s it. Your transaction is complete. With AePS, you replaced the need for a full-fledged bank branch, debit card, and PIN/OTPs. Even your family member who doesn’t have much knowledge of banking transactions can use AePS with ease.
With AePS, you can avail of banking services like cash deposit, cash withdrawal, balance enquiry, mini statement, Aadhaar to Aadhaar fund transfer, authentication, BHIM Aadhaar Pay and others.
You can transfer a maximum amount of ₹10,000 per transaction, and there is a daily limit of ₹50,000 on the total number of transactions. Remember, the RBI does not impose any restrictions on AePS transactions. Instead, these limits are imposed by some banks.
For now, AePS transactions are slightly more expensive than UPI transactions. AePS transactions can cost up to ₹15 per transaction.
A step-by-step guide to use the AePS facility
AePS operates seamlessly and efficiently, simplifying banking for millions. Let’s walk through the process in four easy steps:
Step 1 – Enrolment
To use AePS, you must link your Aadhaar number to your bank account. This process, called Aadhaar seeding, allows banks to recognize customers biometrically.
Step 2 – Micro-ATM visit
In rural areas where physical bank branches are scarce, Micro-ATMs play a pivotal role. These handheld devices act as touchpoints for AePS services hosted by BCs.
Banking Correspondents are bank-appointed individuals who deliver basic banking services to remote regions. They act as a link between the bank and the customer. Even your nearby Kirana store uncle can become a BC.
Step 3 – Biometric authentication
When using a Micro-ATM, enter your Aadhaar number and select the desired transaction type (e.g., withdrawal, balance inquiry, fund transfer). The Micro-ATM then prompts you to undergo biometric verification.
Step 4 – Secure transactions
After placing your finger on the fingerprint scanner or looking into the iris scanner, the AePS system matches your biometric data with the details stored in the Aadhaar database to authenticate your identity. Once verified, the transaction is processed securely, and they provide a receipt as proof.
How do Micro-ATMs and Banking Correspondents empower the unbanked and underbanked population with AePS?
Micro-ATMs and Banking Correspondents play a transformative role in empowering the unbanked and underbanked population in rural India. They provide –
1. Accessibility and convenience
In remote areas, where traditional bank branches are few and far between, deployment of Micro-ATMs becomes a game-changer. These portable devices enable individuals to conduct banking transactions without travelling long distances, saving time and effort.
2. Financial inclusivity
For generations, many individuals in rural India have remained excluded from formal financial services because of various barriers, such as lack of documentation or financial literacy. AePS, through Micro-ATMs and BCs, brings these services right to their doorstep, bridging the gap and creating a more inclusive financial ecosystem.
3. Enabling cashless transactions
AePS encourages the adoption of digital payments, even in regions where cash has traditionally been the preferred mode of transaction. As Micro-ATMs become more prevalent, they facilitate the transition to cashless economies, contributing to the larger goal of a less-cash society.
4. Tailored financial services
Banking Correspondents play a crucial role in understanding the unique needs of their communities. They offer personalized help and guidance, ensuring that individuals make the most of the banking facilities available.
5. Building trust and empowerment
For many individuals, especially those unfamiliar with formal banking procedures, BCs serve as trusted intermediaries. They help demystify financial processes, empowering people to take control of their finances and make informed decisions.
6. Government benefits and subsidies
AePS has become an essential channel for disbursing government benefits and subsidies directly to beneficiaries bank accounts. This streamlined process eliminates intermediaries and reduces leakages, ensuring the intended beneficiaries receive the full benefit.
Challenges and the road ahead for AePS
While AePS and the use of Micro-ATMs and BCs have shown tremendous promise, some challenges remain on the path to complete financial inclusion:
1. Technological awareness
In remote regions, where digital literacy might be limited, raising awareness about AePS and educating users on secure transaction practices is essential.
2. Infrastructure and connectivity
Reliable internet connectivity and electricity supply are crucial for the smooth functioning of Micro-ATMs. Ensuring consistent access to these services remains a challenge in some areas.
3. Security concerns
With the growing adoption of AePS, ensuring the security and privacy of individuals’ biometric data becomes paramount. Stringent measures must be in place to safeguard against data breaches and misuse.
Recently, there have been some instances where biometric data was leaked, and scammers stole a lot of money using them. We will cover more about these scams and guide you through the steps to secure yourself in our next newsletter.
Also, don’t forget to check out 9 basic tips to prevent and free yourself from banking fraud.
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