Aadhar-Pay : The Facelift to Digital Payments

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Post the demonetization move in November 2016, the impetus to going digital has been tremendous. Many payments solutions dived right in to get a bite of the ensuing predicament, none however has been more promising than Unified Payments Interface (UPI) introduced by the National Payments Council for India (NPCI).

Our collective trust as a nation, still happens to lie with the banking infrastructure. As opposed to online wallets, UPI offers a transaction solution from within the banking framework. The payment solution is simple, quick and easy to adopt, with the primary focus being on low value transactions. Aadhar pay is a parallel merchant-focused solution to the UPI and when implemented will come with added security features.

What is Aadhar Pay?

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A cashless, cardless and device-less payment option which leverages the Aadhar database and uses your thumb impression for payment authentication. While UPI is a peer-to-peer solution that requires a mobile device to initiate cash transfer, Aadhar-Pay will not require any such devices.

Key Features

  • Service aimed at merchants, enabling them to receive payment from customers without any physical payment devices.
  • Based on the Aadhar platform which can be linked to your bank account in order to enable transactions.
  • Does not require a card, mobile phone or other payment instruments.
  • Real-time Bank-to-bank money transfer for those without a phone or other payment instruments

How Does it Work?

The process is simple as it is robust, ensuring a seamless and secure experience for merchant and customer alike. To transact, a customer would need to have their Aadhar number linked to their bank account. A payment would only require the bank name and the customer’s Aadhar number. The customer can then scan his fingerprint using the bio-metric device used by the merchant to authenticate and approve the transaction.

Steps Involved:

  1. Linked Aadhar to Bank account
  2. Enter Bank name and Aadhar number while making payments
  3. Use fingerprint as authentication to complete the transaction.
  4. Quick, seamless and secure mode of transaction.

What is The Aim?

Aadhar pay and UPI have been introduced to enable cashless and small value transactions to enable merchants and the ordinary citizen progress onto the digital platform. If implemented successfully this can bring about transparency and progress to the payments landscape in India, thrusting it forward among the advanced economies of the world.

We have taken a frog-leap in banking technology and jumped straight to cash-less banking Click To Tweet

By integrating Aadhar and bank account, the level of security is increased manifold and gives the customer more control over his finances. By not having to carry any payment instruments along, chances of theft and fraud are reduced while making the transaction highly efficient and quick.

What is The Real Challenge?

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source: Livemint

The real challenge to this would lie in its successful adoption. So far only IDFC Bank has deployed it’s Aadhar based solution. There is no real impetus for financial institutions to engage and invest in this as much of the economy still leans towards a cash intensive approach.

The demonetization move may have pushed the economy to try out digital payment alternatives, but it’s going to take a lot more to ensure we continue down this path.

Why Banks Don’t Have an Aggressive SME Portfolio

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India is home to a large number of MSMEs and startup companies. With ~29.8 million MSMEs in India, they make up for 8% of our Nation’s GDP, provide employment to over 80 million people (also creating close to 1 million new jobs annually), contribute to 45% of the manufacturing output and account for 40% of exports from our country. They are the crucial implants in the economy and contribute significantly to the economic and national progress of India. One of the major vantages of SMEs is the fact that they can render large employment opportunities at comparatively lower cost of capital than large institutions are capable of doing. In addition to this they play another key role in India- Industrialization of rural areas. It is no wonder then that the current budget lays emphasis on SMEs and agriculture; the government knows that it is these MSMEs which will drive growth and progress into our rural areas.

SMEs contribute to 8% of GDP, 45% of manufacturing output, 40% of exports, employ over 80million people and create 1 million jobs annually

But, for all the glorious contributions of the SME’s to the economy, they are constantly under the burden of insufficient access to funds. The majority of these SMEs do not have access to a loan or the eligibility to apply for one for that matter. Most of the traditional lenders prefer the old school collateral based lending and assess the borrower based on previous profitability with at least three years of sustained growth. Unrealistic expectations on these companies that are tardy in growth and operating in sectors that don’t support high cash flows, results in most of them being turned down when it comes to loan approvals.
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Why Banks Don’t Want to Lend to Your Business for 90 Days

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With an estimated 26 mn small businesses providing employment to over 60 mn Indians, small businesses are a key growth engine of the economy. It has also been identified in numerous studies that access to credit is one of the key pain points for the small business. In a recent report on the working capital financing gap in the country published by International Finance Corporation outlines that the bulk of the working capital demand is for short term credit.

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