Overview of Aadhaar Enabled Payment System (AePS)

The Reserve Bank of India (RBI) has issued guidelines to enhance the Aadhaar Enabled Payment System (AePS) which was launched in 2011. AePS is a bank-led model that enables online, interoperable financial transactions at MicroATM terminals using Aadhaar authentication.

Comparison with UPI

• AePS: Caters primarily to rural and semi-urban India, facilitating financial services like cash withdrawal, deposit, and fund transfer, and non-financial services such as balance inquiry.
• UPI: Developed by the National Payments Corporation of India (NPCI), it allows real-time person-to-person and person-to-merchant transactions via mobile devices.

RBI Guidelines for Acquiring Banks

• Acquiring banks must conduct due diligence on AePS touchpoint operators (ATOs) and update KYC details periodically.
• Inactive ATOs for three months require fresh KYC verification.
• Continuous monitoring of ATOs based on transaction patterns, location, and operation type is mandated.

Challenges and Recommendations

• Public sector banks (PSBs) underutilize AePS compared to private and payment banks, often capping transaction numbers.
• There is a call for RBI to allow third-party deposits to enhance transaction convenience.

Role of Payment Aggregators and Prepaid Payment Instruments (PPIs)

The RBI is setting guidelines for Payment Aggregators (PAs) to function effectively, possibly enabling cash withdrawals via QR codes. Confusion about PPI operators' functionalities persists, notably around loan repayments and transaction limits.

PPI Limitations

• Current restrictions on using credit card-loaded funds in wallets for loan repayments.
• PPI wallets can hold up to Rs 2 lakh, with monthly cash loading and withdrawal limits.

Conclusion

India's payment systems, including UPI, AePS, PAs, and PPIs, are crucial for financial inclusion and economic empowerment. These systems collectively advance digital payments, especially benefiting rural populations.