Pulak Sinha, General Manager (PS), State Bank of India,
on Electronic benefit transfer and AADHAAR enabled prepaid cards.
Introduction:
With the emphasis on financial inclusion and extension of banking facilities in the hitherto uncovered areas, the reach of banking services has increased considerably and is poised to increase further. It has, thus, become imperative that a greater focus is given to the Electronic Benefit Transfer (EBT). There are at least 32 Schemes of the Central Government in addition to many more such Schemes at State Governments level which involve transfer of benefits to millions of beneficiaries. The GOI has started EBT in 20 districts in the month of January, 2013 through bank accounts. Another 23 districts will be covered shortly. According to GoI, the direct benefit transfer scheme will be a game changer and will be implemented across the country at the earliest. It is no doubt the best way to transfer money / benefits directly to poor.
Challenges:
The process for EBT involves linking of all government benefits to Aadhaar-based identification of beneficiaries and to channelise the cash benefits through Aadhaar-enabled bank accounts. However, the scheme of routing cash benefits through such accounts to succeed, the pre-requisites are, as under:
· Account of the beneficiaries in one of the 73 Banks (including RRBs), identified by Central Plan Scheme Monitoring System (CPSMS).
· Aadhaar numbers of all the beneficiaries.
· An electronic database of the beneficiaries to be maintained on a continuing and regular basis by the concerned line departments of the Government.
· Seeding of bank accounts of the beneficiaries with the respective Aadhaar numbers.
· Seeding of the database of the beneficiaries with Aadhaar numbers.
While all these are important and inter-dependent for the smooth implementation of the project, the most important requirement for its success is to ensure that there is adequate access to banking infrastructure in the unbanked areas to serve the beneficiaries. To that end, the main challenge lies in opening of bank accounts covering all the beneficiaries. We need to provide basic banking facilities to more and more unprivileged and underprivileged, which can be attained if and only if we could be able to touch upon the bottom of the pyramid. For implementation of the scheme, as of now, the requirement is at least one account per family. Going by the statistics, presently, only 40% of the eligible population have a bank account which could be achieved with the direction of the government, by setting up RRBs, by introducing Business Correspondents, etc. Even today, the penetration of bank branches in rural areas is very thin and as such, the access of rural populace to banking is very poor. To be precise, out of 6,00,000 villages, 5,50,000 villages lack basic banking facility. Moreover, if we consider various types of benefits and their purposes, all of them should not be credited to a single family account e.g. Scholarship to a student should be credited to his / her account. To address this issue, there is an explicit need of opening accounts of all the beneficiaries. In addition, as mentioned in the beginning of the paragraph, access to banking infrastructure is of paramount necessity. There is no doubt that payment of EBT through Aadhaar-enabled account is the most desirable option. But taking into account the ground level situation of the banking infrastructure and mammoth task of opening of accounts of the hitherto unbanked population, it appears that the Government may have to consider simultaneously some other plausible options to make the scheme a reality.
Prepaid Card as an Option:
We shall now discuss one such option viz. Prepaid Cards as a means of implementing the EBT Scheme. Prepaid Card is a channel in itself as it has no dependency on an underlying Bank account. The huge untapped banking population provides us immense potential to promote this channel which will prove to be a win-win situation for all concerned, at least in medium term i.e., till such time the penetration of bank branches to hitherto unbanked areas of the country improves substantially to take care of the entire population of the country.
Prepaid concept works in the principle of pay now use later. India has witnessed an exponential growth in tele-density on introduction of prepaid concept in mobile connections. In Banking industry, Prepaid Cards were launched in 2004 as Foreign Travel Cards and in 2005, as Rupee Prepaid Cards which provide a convenient, secure and hassle free way of payment. Prepaid instruments are very popular even in developed countries like U.S.A., Italy, etc. It can prove to be an excellent tool for providing banking services to the masses as a first step towards financial inclusion. As compared to traditional banking like opening an account which involves substantial cost to the bank, Prepaid as an alternative is cost effective and can easily cater to the basic needs of unprivileged people.
Types of Prepaid Cards:
Based on the Reserve Bank of India guidelines, there are three variants of prepaid cards in India:
· Open Loop Payment Instruments:These are used for (i) purchase of goods and services at any merchant locations through Point of Sale (PoS), (ii) purchase of goods and services through e-Commerce, and, (iii) drawing cash from ATMs. Maximum amount that can be loaded at any point of time is Rs. 50,000/-
· Semi- closed Payment Instruments: Same as above excepting that these do not permit cash withdrawal. Maximum amount that can be loaded at any point of time is Rs. 50,000/-
· Closed System Payment Instruments: These do not facilitate payment and settlement for third party services nor cash withdrawal. These operate in a closed system only. No upper limit is fixed for such cards.
Benefits:
Prepaid Cards provide advantages to all concerned viz. Card Holders, Card Issuers i.e., Banks, and the Government.
To Card Holders:
· No need to open conventional bank account – relief from keeping minimum balance and paying related charges.
· Immediate access to funds.
· Broad acceptance across ATMs and / or PoS terminals at merchant establishments.
· Can be used for e-Commerce.
· Access to multiple sources for benefits with a single card.
· No waiting for cheque encashment or voucher exchange.
To Card Issuers / Banks:
· Low cost product and ideal substitute of ‘No Frill Account’.
· Reduce footfall at the branches.
· Sizeable amount of float funds.
To Government:
· Help electronification of payments.
· Reduce cash transactions.
· Assist in implementation of EBT – help curbing misappropriation of funds by various agencies.
· Reduce dependence on branch banking.
Aadhaar-enabled Prepaid Cards & EBT: Aadhaar-enabled Prepaid card is a general purpose, open loop, reloadable Prepaid Card. The card has a magnetic stripe to facilitate all transactions. The Card will work as a Biometric Card for performing required banking operations at Aadhaar enabled Micro ATMs [These are biometric authentication enabled hand-held devices (also known as a Point of Transaction (PoT) terminals). Micro-ATMs primarily perform the functions like Cash withdrawal, Cash deposit, Balance enquiry, and Remittances.] The payment card would work without biometric authentication also like a normal Prepaid card at all the existing POS terminals and ATMs, using PIN/Signature authentication. The card can be used only in India. Electronic benefits can very well be credited to the prepaid card account of the beneficiaries on a regular basis and they, in turn, can use the same for withdrawing cash through ATMs, BCs or merchants (Cash at PoS) outlets or for purchase of goods and services of their choice through PoS or e-Commerce, in electronic mode.
Process Flow:
Card works with biometric authentication:
· Customer visits a Business Correspondent / other merchant outlets, where Aadhaar enabled Biometric Micro ATMs are installed, for performing Cash deposit / Cash withdrawal / Remittance operations.
· Business Correspondent / Merchant swipes the Card and enters the amount of transaction.
· The customer needs to place his/her best finger, as advised by Business Correspondent / Merchant on the biometric reader.
· Transaction data i.e., Card details and biometric details pass from Micro ATM to Acquiring Host.
· The Acquiring Host fetches the Aadhaar number from the Mapping table and sends Aadhaar No. and biometric details to UIDAI server for authentication.
· UIDAI server verifies the Biometric information and sends the Confirmation to Acquiring Host.
· The Acquiring Host then sends the payment transaction to Issuing Host, using the network, for authorisation.
· The issuing system verifies the card account details and responds to authenticated transaction.
· Transaction is returned to Micro ATM device, using Acquiring Host and the network, and a receipt confirming the transaction is printed.
· The settlement operations are similar to the existing settlement system, where respective scheme acts as a clearing & settlement agent.
Way Forward:
As these cards are open loop payment instruments, KYC compliance remains the responsibility of the issuing banks. Aadhaar number provided by the Unique Identification Authority of India (UIDAI) will act as single KYC document in respect of all the beneficiaries excepting where the beneficiary’s present address differs from the address as recorded by UIDAI. To this end, the idea of e-KYC being mooted by UIDAI is going to be game changer in the coming days. Moreover, for these cards to work successfully and seamlessly, proper and efficient eco-system should be in place. To address this, we need to deploy not only Micro ATMs but also normal ATMs and PoS terminals across the length and breadth of the country as more and more people are becoming literate, particularly number literate, courtesy mobile telephones.
Conclusion:
Cash transfers to hand out subsidies / other benefits are sensible, but a national roll-out needs preparation and should not be rushed through. While it is a proven tool as demonstrated in several developed as well as developing countries, India needs to move cautiously rather than implement it hastily and regret later. However, going by the preparedness from the standpoint of available account holders vis a vis the number of beneficiaries, Government of India needs to take a call of permitting Aadhaar-enabled Prepaid Cards as a supplement of bank accounts in the medium term for rolling out EBT pan India.
