Aadhaar verdict puts fintech firms in a spot

New Delhi: With the Supreme Court barring private companies from seeking Aadhaar data, digital payments companies may lobby with the finance and law ministries to formulate a law that will allow them access to the biometric database.

The judgement will have an adverse impact on the digital payments industry, especially for small fintech companies and start-ups, which have low-cost business models and use Aadhaar for customer verification, said Vishwas Patel, chairman of Payments Council of India (PCI), the industry body that represents all digital payments companies in India.

“We expect to find a way to get payments companies to use the Aadhaar database for doing e-KYC (know-your-customer) and e-signatures, while taking into consideration the privacy concerns as identified by the apex court. We also expect that the government still has the scope to formulate a law in this regard.”

Fintech start-ups selling loans, mutual funds and insurance, as well as payments banks, which used Aadhaar authentication as part of their electronic infrastructure, are also expected to be affected.

“That portion of Section 57 of the Aadhaar Act, which enables body corporate and individuals to seek authentication is held to be unconstitutional,” a five-member constitution bench headed by Chief Justice Dipak Misra said in its judgment on Wednesday.

Section 57 of the Aadhaar (targeted delivery of financial and other subsidies, benefits and services) Act, 2016 allows the use of the unique ID for establishing the identity of an individual for any purpose, whether by the state or corporate or person.

The provision has been read down by the court and now only allows the government to use Aadhaar for various social welfare schemes.

According to Patel, after extensive consultations, especially the part of the judgment pertaining to Section 57, the industry body will approach both the finance and law ministries and seek their guidance on the matter.

“Going back to the traditional way of verification of customers is riskier than the Aadhaar-based one. It will lead to misplacement of physical copies of identity proofs of customers which is a greater threat to privacy.”

According to an industry expert, who spoke requesting anonymity, the move is also likely to increase the on-boarding cost of these firms.

It could increase the cost from ₹ 15 per person, which is the current cost of e-KYC verification, to ₹ 100 per person for a physical KYC.

“This will lead to peculiar challenges faced by the customers in order to access credit. There will be delays in instant loan approvals. With the physical model, credit facilitation may take more than three days, against the 10-15 minutes for the online model. Also, the cost of accessing credit may go up due to the physical model. This burden will mostly be passed on to the borrowers,” said Manav Jeet, managing director and chief executive officer, Rubique Technologies Pvt. Ltd, an online marketplace for financial products.

Information and technology minister Ravi Shankar Prasad has urged the fintech industry not to panic and said that the government will look into the matter and bring in a law, if needed.