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A large portion of the funds transferred via AePS are subsidised by the government through Direct Benefit Transfers
Digital Payments
Over the last few years, the Aadhaar Enabled Payment System (AePS), which is used by a substantial portion of the country’s migrant population, has either remained stable or seen a slight reduction. According to data from the National Payments Corporation of India (NPCI), the value of AePS transactions decreased from around Rs 27,900 crore in April 2022 to Rs 23,600 crore in September. From 205 million in April 2022 to 202 million in September 2024, the number of transactions varied, reported MoneyControl.
What is the Aadhaar Enabled Payment System (AePS)?
Through AePS, bank customers can do basic banking operations including checking their balance, making deposits and withdrawals and remittances through a business correspondent (BC) using Aadhaar-based authentication, namely fingerprint verification. A business correspondent is an agent of a bank who is permitted to do the majority of banking tasks for customers on the bank’s behalf.
A product that incorporates a financial inclusion component is lagging for three main reasons, while there are other elements at work as well. Although AePS is not directly involved in product implementation, it does run the system because it was created by the NPCI. There is a significant increase in both the quantity and value of transactions during certain months when government subsidies are credited to the beneficiary accounts. That, however, does not represent consumer transactions.
Below are a few reasons as to what is leading to AePS’s decline:
Only Transactions That Take Place Within the Same Bank
The AePS transaction numbers pertain to off-us transactions, which are financial transactions that take place between two banks via the NPCI settlement channel. Due to AePS’s usage of NPCI technology, all bank transactions on the network go through the NPCI network; nevertheless, the NPCI is unaware of the value of these transactions.
Interoperability
According to reports, there were concerns about money laundering using AePS some years ago, thus the regulator required BCs to verify themselves with fingerprints for every single transaction. Although this has decreased the frequency of fraudulent transactions, some banks have reportedly begun to use this as an excuse to refuse interbank transfers because they are unfamiliar with the account holder. To conduct such transactions, they demanded that the account holders visit their local branches and provide explicit approval.
Regulatory Changes
Several more regulatory regulations might render the entire BC sector unprofitable for both banks and agents. The RBI recently stated that financial institutions must check all BC facilities once a year for verification. It is also mandatory that all BCs obtain certification.
While these two requirements are not unique to AePS, they would most certainly impose a hardship on smaller private sector banks and payment institutions that have established a significant BC network on the ground.
ATM Parity
AePS is not a profitable service for many BCs, hence they have been asking the RBI to increase the interchange. Their demands are similar to those of ATMs, where the regulator permits a flat cost of Rs 17 per transaction.
Hesitancy’s Irony
A large portion of the funds transferred via AePS are subsidised by the government through Direct Benefit Transfers. The accounts are Jan Dhan accounts that were opened with public sector banks. An estimated Rs 2.2 lakh crore is deposited annually in these accounts, which yield interest rates of no more than 3–4 per cent. On the other hand, PSBs typically charge 9–11 per cent interest on loans.
Although a significant portion of the populace may have switched from utilising AePS to UPI in recent years, the programme is still relevant to a sizable portion of the nation.
