Cash withdrawal from bank accounts is an essential financial service in a crisis. Withdrawals are a lifeline for migrants, daily wagers and other informal sector workers suffering severe setbacks to their livelihoods in the ongoing national lockdown. Unfortunately, bank branches and business correspondents (BCs) have also suffered service disruptions in the lockdown, further limiting the cash-out points in the country.
As a result, we have seen a pivot to reliance on the Aadhaar enabled Payment System (AePS), which has emerged as a key cash-out medium. AePS enables consumers to withdraw cash after biometric authentication from micro ATMs operated by BCs. A surge in AePS transaction volumes has been witnessed: 403 million approved AePS transactions were reported by NPCI in April 2020 compared to roughly 172 million in March 2020. This could be due to cash transfer schemes from governments to vulnerable citizens, creating a huge demand for withdrawal. Many migrants who are part of the mass exodus away from affected cities can also no longer access bank branches or ATMs, heightening reliance on wayside shops and BCs with MicroATMs to access cash.
Unfortunately, the rise has been accompanied by reports of a dramatic spike in AePS transaction failure rates. Our conversations with four financial institutions operating across India confirm serious concerns. The average percentage of failed AePS transactions was 39% in April 2020, ranging from 10% to 62% across providers.
The variation in failure rates could be due to factors such as transactions in areas with poor connectivity or weaker systems of certain banking partners. Regardless of the reasons, this has serious consequences for consumers in a crisis. At a 39% failure rate, over 257 million transactions may have failed (if 403 million approved transactions are reported).
The human cost of AePS failures: The big concern is that transaction failures rates have increased as AePS volumes have grown. Some providers see failure rates rising from 49% in early March to beyond 60% in April 2020. This means that failures as a proportion of all transactions executed are much higher now.
This is a humanitarian problem because some banks place a cap on the daily number of AePS cash transactions a consumer can perform, often limiting them to just one. Therefore, a failed transaction could mean no access to money at all. Interrupted transactions can also mean customers’ accounts are debited without cash being disbursed. In these cases, it can take 14-15 days for the money to be returned to consumers, although the Reserve Bank of India (RBI) mandates (bit.ly/2A1OHD5) a T+5 settlement period—or five days following the transaction date—and ₹100 per day penalty for a failure to do so.
More egregiously, in some cases the amount is never returned. Where transactions have left the system of the customer’s bank and then failed, the only recourse is for the customer to visit a branch and requisition officials to raise a “chargeback" request. This is impossible to imagine in this crisis, let alone in normal times.
Reasons for failures: The analysis of the response codes generated for such failures reveals two main reasons: biometric mismatches, and timeouts of transactions because of no response from banks or the National Payments Corporation of India (NPCI) Switch. Other reasons for transaction declines relate to accounts not being properly linked to Aadhaar, containing insufficient funds or being blocked or frozen. Also, transactions can be declined if the maximum transactions for a day are exceeded. We know that many low-income consumers may not know whether a cash transfer has reached them or if they have enabled mobile banking SMS service. If so, they could simply be querying their account incorrectly. When declined, they can be locked out of financial access for the entire day.
Some solutions: We must act to fix these issues quickly. A crisis brings to the fore long-standing issues in our financial system, thus presenting an opportunity to find immediate and long-term solutions for them.
First, RBI and NPCI must urgently reconstruct the difficult consumer redressal process on AePS transactions. The system’s reconciliation and chargeback must occur as automatically as transactions themselves, with fines for failure to refund client monies promptly. NPCI must reconsider interchange fees and other fees for AePS in the short-term, since these act as incentives for banks to place transaction caps.
Second, banks must urgently upgrade server capacity to process more transactions per second, and maintain clear seeding and services for all accounts. BCs must provide account balance before transactions for customer’s information. BCs can (and many do) support consumers with filing complaints and explaining the next steps in case of failed transactions.
Last, we must give consumers the option of re-recording fingerprints after conducting a thorough, transparent and accountable audit of failed biometrics. Biometric failures have been highlighted as a leading cause of AePS failures even before the lockdown in a research from ISB (bit.ly/2Wx3qxy), and recognised in RBI’s Nilekani Committee report on Deepening Digital Payments and the ministry of finance’s Watal Committee report on digital payments. The reliance on AePS is likely to continue in the months ahead as India battles the covid-19 pandemic. Failure to fix such a critical infrastructure issue would be our failure to support the most vulnerable in our country.
The authors are, respectively, head, future of finance initiative, and group president at Dvara Research.