The government's Covid-19 rescue package, which includes cash transfers to over 30 crore accounts, is running into glitches in the Aadhaar Enabled Payments System.
The AEPS is being widely used to ensure that cash reaches those who may not have access to bank branches and ATMs but a sudden surge in transactions has meant that technical glitches have been amplified, said mutliple executives who work with firms acting as business correspondents.
According to a government release on April 23, cash transfers worth Rs 31,235 crore were made to 33.14 crore beneficiaries during the month. Around 90 percent of these funds were transferred to beneficiaries in the first 10 days of April.
Publicly available NPCI data shows that over 41.15 crore AEPS transactions worth Rs 14,708 crore were processed in April, compared to 18.2 crore transactions worth Rs 10,170 crore in March this year.
In a Twitter post on May 5, the finance ministry said that 43 crore transactions worth a total of Rs 16,101 crore were conducted via AEPS during the lockdown. Over 8 crore women Jan Dhan account holders withdrew funds from their accounts till date, the ministry said.
Avg. daily AePS transactions doubled to 113 Lakh: Total 43 Cr. transactions of Rs. 16,101 Cr. made during the lockdown. DFS Congratulates the whole banking system & lauds BCs/CSPs for making it possible by providing services via biometric devices even in remote areas @FinMinIndia pic.twitter.com/6AsapLBCgR
Authentication Failures
BloombergQuint spoke to four business correspondent firms and three bankers who said that the surge in transactions meant that there is also an increase in the number of transactions that fail to go through at the first attempt.
Transaction failures across payment systems aren't unusual and can occur on account of poor telecom signal, which leads to time-out errors.
However, for AEPS transaction, one type of transaction failure which occurs is an inability to authenticate the beneficiaries biometric details via their Aadhaar number and bank account.
The failure rate, which represents the percentage of transactions not going through at the first try, has remained at around 20-30 percent, said the head of a payments company. However, the surge in transactions has meant that the absolute number of failed transactions have surged, this person said, speaking on condition of anonymity. That's not to say that these transactions don't go through in subsequent attempts.
The head of a second business correspondent firm also said the number of authentication failures rose to over 45 to 50 percent from around 20 to 30 percent earlier. While it was possible to conduct the transaction again if the authentication fails at the first try, the sheer volume of transactions was choking the system, this person added.
The AEPS system has four nodes, including the bank's agent, the acquiring bank, the NPCI and the issuing bank. Every transaction has to successfully pass through the four nodes and back for it to be completed. As part of the AEPS transaction chain, the NPCI is linked to the Unique Identification Authority of India's database and system, which verifies the customers' bio-metric details.
“Even though the ticket-size of withdrawals is small the number of transactions has almost grown 5 to 6 times, mainly because most customers wanted to check their balances to see if they received the money from the government, ” said Ketan Doshi, managing director at PayPoint India. “The AEPS was not ready for such a large volume leading to delay and decline in transactions due to the lack of commensurate infrastructure.”
An authentication errors occurs when the NPCI's system cannot verify the customers' biometrics, either due to improper fingerprint scanning, incomplete KYC, or a mismatch between the bio-metrics and bank account details among other errors.
According to publicly available NPCI documents, there were 20 types of errors or ‘error codes' in the transaction leg between NPCI and UIDAI but a total of 200 error codes when it comes to withdrawing cash through the AEPS full transaction chain.
An email sent to NPCI on Thursday was not answered.
Delays In Reversing Wrongful Debits
Another type of failure that has hit AEPS transactions is incorrect debits from accounts. While this problem existed before, it is now taking longer for these transactions to reverse, said the executives BloombergQuint spoke to.
As per NPCI guidelines, an incorrect debit has to be reversed within two days.
However, since the banks are short-staffed, the credit reversal process has taken more than 15 to 20 days in some cases, the business correspondents cited earlier said.
“In the past credit reversals of failed transactions generally used to take two days. But under the lockdown and the work from home scenario for many bank employees, it has gone up to 14 days for around one percent of all failed transactions,” said Doshi of Paypoint.
A letter sent by the Business Correspondent Federation of India to the Finance Ministry on April 23, also highlighted this issue. “There are thousands of cases where customer account is debited but the money has not been reversed by the customer bank in time, which results into feeling of angst by the customer...,” the letter said. BloombergQuint has seen a copy of the letter.
“The NPCI is working with issuer banks to improve the process since we may have a few more cycles of cash transfers by the government over the next few months given the Covid-19 crisis,” said Ashish Ahuja, chief business officer, Fino Payments Bank. He added that Fino has enabled its reconciliation process and teams to work from home. Since they have a smaller number of beneficiaries on their system, wrongful debits can be reversed more quickly.
Banks have also created a web portal for their customers, business correspondents and other partners to upload failed transaction details, said a senior executive at a private bank.
Dealing With Dormant Accounts
A third layer of difficulty has been added due to a recent government directive.
Back in 2013, the Reserve Bank of India directed banks to ensure that inoperative or dormant accounts should be blocked in the bank's core banking system to avoid wrongful credit. As of Jan. 15, there were 7 crore inoperative Jan Dhan accounts out of 37.87 crore, The Hindu Business Line newspaper reported in February.
The Finance Ministry recently directed banks to ensure that “beneficiaries don't face any difficulty on this ground and are able to withdraw the money transferred to them...” it said in a letter, dated in a April 1, 2020. BloombergQuint has seen the letter.
While the idea behind the letter was to allow credits even into inoperative accounts, banks are asking customers to do their e-KYC again so that the account can be removed from the dormant account status, said the payments company head cited earlier.
Banks, on their part, have internal policies, specifically on KYC and consent, for reversing a blocked or dormant account which need to be followed, the banker quoted above said. To abide by the governments' direction to allow such account holders to withdraw the money, banks are setting withdrawal limits internally, said another senior banker on the condition of anonymity.
Due to a number of inactive or blocked accounts and cross-wiring in the Aadhaar Payments Bridge, there is a traffic jam in the banking and cash-transfer system, said Reetika Khera, associate professor, IIM-Ahmedabad.
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