How National IDCan Power Universal Payment Acceptance?

Suresh Rajagopalan, President - Software Products Business, Financial Software & Systems Financial Software & Systems is a payments technology leader with a suite of products and services that powers retail delivery channels such as ATM, POS, Mobile, Internet and cards across the globe.

India is one of the world’s fastest growing economies with US$2.2 trillion in GDP but still has more than 85 per cent of personal consumer expenditure made by cash. Despite its growing middle class and relatively strong cardholder base of 645 million, debit and credit cards usage at point-of-sale (PoS) is 1.7 transactions per cardholder in India. The principle reason for slow progress in adoption of electronic payments and acceptance of cards is low penetration of acceptance locations. With just 2.7 million PoS, India has underdeveloped coverage. This is further concentrated in the country's primary cities, which account for an estimated 70 per cent of terminals and spend. RBI has indicated that the country needs an approximate 20M POS devices to create a card acceptance infrastructure comparable to other BRIC countries.

Another challenge in adoption of PoS payments is the high interchange fee, charged by a consumer’s bank to a merchant’s bank to facilitate a card transaction. The high processing fee renders the value - proposition non-compelling, especially for micro and small merchants. Aadhaar Pay, a biometric-enabled merchant payment acceptance solution, rides on the real-time interbank network, for transaction clearing and settlement, instead of the expensive traditional card rails. In this process, it lowers processing fees and promotes higher merchant uptake.

How it Works?
FSS Aadhaar Pay exploits three critical elements like bank accounts, mobility and digital identity - to disrupt traditional PoS business models. The service leverages the universal availability of the mobile device and Aadhaar - India's biometrically - enabled digital identity - that covers 99 per cent of the population to advance the growth of digital payments. Envisaged as an open platform, the Unique Identification Authority of India (UIDAI Stack), allows payment service providers to consume APIs,'on-demand to authenticate customers. Besides leveraging Aadhaar for establishing user credentials, the national identity also serves as a financial address that can be directly linked to the customer’s bank account.

Any merchant with a biometric reader and an Android phone can download the Aadhaar Pay application, self-register for the service using e-KYC, and start receiving payments. Customers make payments by scanning the fingerprint and entering the amount at the PoS terminal. Aadhaar Pay uses Aadhaar APIs to authenticate the customer’s biometric credentials mapped to the social security number. On successful authentication, the transactions are routed to the customer's issuing bank. In contrast to setting-up a
PoS terminal, which takes between two to three weeks, FSS Aadhaar Pay takes a few minutes to set-up and Total Cost of Ownership, TCO is far lower.

The principle reason for slow progress in adoption of electronic payments and acceptance of cards is low penetration of acceptance locations. With just 2.7 million PoS, India has underdeveloped coverage

Delivering a Multiplier Impact
Aadhaar Pay has a multiplier impact on the growth of the acceptance payment ecosystem by bringing quick-to-deploy, mobile-based affordable PoS infrastructure to merchants whilst creating a seamless transactional experience for customers. Specifically, it triggers a virtuous cycle of growth by:

Creating a Ready Market of 900 Million Captive Customers
On the demand-side, Aadhaar Pay creates a ready addressable market of 900+ million customers by leveraging Aadhaar as a primary transaction identifier. It also eliminates hassles related to downloading multiple apps, swiping cards, remembering PIN/passwords, downloading e-wallets or carrying a phone.

Broadening the Merchant Ecosystem
On the acquirer side, Aadhaar Pay reshapes expensive acquirer distribution models, by allowing banks to target previously under-penetrated micro-merchant segments, with an efficient technology and commercial framework, easing the way for rapid on boarding and expansion of new acceptance points. The smallest street vendor, with the aid of a basic 2G phone and a fingerprint scanner device, can accept digital payments. To promote rapid uptake, there are no restrictions related to transaction amount, type of business, transaction volume, time, location, demography, and goods category.

Offering a Low-Cost Solution
FSS Aadhaar Pay significantly reduces the Capex and OPEX making it an ideal solution for all merchant segments, especially micro-merchants with a small turnover and low transaction volumes. While, a PoS terminal can cost upwards of Rs.8000, the Aadhaar Pay application can be downloaded on a 2G Android phone and connected to a biometric reader that costs only Rs.2000.

Delivering Differentiated Added Value Services
Beyond the transaction, Aadhaar Pay potentially would take on a more sophisticated, innovative approach to VAS. Merchants could benefit from a complete packaged business solution, with the ability to customize specific components. This includes:
• support for QR codes
• ability to dynamically configure offers and discounts
• electronic invoices
• analytics and reporting

Settling Transactions in Real-Time
In the traditional interchange four-party payment models, settlement follows a typical T+1 cycle. Aadhaar Pay uses the bank account as a source of funds and all transactions are cleared and settled using the IMPS network (India’s real-time fund transfer network), ensuring immediate crediting of accounts, freeing funds and lowering working capital requirements for merchants.

Lowering Fraud Liability
As Aadhaar Pay leverages the bank account, it offers a low-risk product, with usage directly linked to the availability of funds in the customer’s account. For acquirers, there is no direct credit risk involved in processing transactions. This significantly lowers fraud liability and enables on-boarding of merchants traditionally deemed high-risk under the conventional acquiring models.

AadhaarPay removes the multiple layers of friction that, merchants and customers encounter whilst making payments.For banks in India, who have recently opened Jan Dhan (no frills) accounts for the low-income demographic,a broad-based acceptance network would prevent instant encashment and improve the circulation of money in the digital format. Further, with the regulator waiving merchant fees, Aadhaar Pay would help to develop sustainable acceptance that can enhance and fast-track the benefits of electronic payments. Taking an early lead in the market, FSS launched Aadhaar Pay in April 2017. Currently, one of India’s top merchant acquirers, with an approximate 20 per cent share of the total POS market, has implemented Aadhaar Pay.