Cashless Inclusion: Micro ATMs, AEPS, NUUP, Offline e-Wallets

This article is part of a set of posts: "Payment Banks: Reliance Jio vs Airtel & More" , "Cashless Finance & Universal Payment Interface (UPI)" , "Cashless boosted by demonetisation ...", "Barter & Cash to Cashless & Blockchain... " , "Service vs As-a-Service ... ", "Financial Inclusion post demonetisation".

One of the key worries after the recent demonetisation in India is whether the reverse of financial inclusion (i.e. financial exclusion) is happening especially in rural areas. Beyond the relatively minor inconveniences in urban life, there is no question about the non-trivial short term disruption in rural value chains (especially agricultural production and transportation sectors) due to the persistent shortage of cash that drives informal cash-oriented sectors. While the resistance towards formalization is likely to continue, a key barrier to growing the cashless component of a less-cash economy is to build a network of merchants and others who will accept electronic payments.

The available cash-in-circulation is also a driver. The Indian Express reports that while 2300 crore pieces of notes have been expunged, the printing presses have a max run rate of 300 crore pieces of notes, implying 3-6 month period for getting back to the same level of cash in circulation. The lower level of cash in circulation will have to be complemented by a significant growth in cashless alternatives.

The government recently announced a slew of incentives to go cashless. One of the incentives was to have NABARD extend financial support to eligible banks for deployment of 2 POS devices each in 1 lakh villages with population of less than 10,000. In combination with the observation that Jan Dhan accounts have near-universal coverage (99.7% of households), implying that these households have a Rupay card, an aggressive rollout of POS/micro-ATMs combined with financial education can help cashless inclusion. The government has asked Rural Regional Banks & Cooperative banks to issue "Rupay Kisan Cards" to 4.32 crore Kisan Credit Card holders via NABARD support.

Micro ATMs

Micro-ATMs are essentially enhanced Point-of-Sale (POS) devices with Fingerprint scanning capability, and compliant with National Payment Corporation of India (NPCI) certifications and protocols. A fancy micro-ATM (by IDFC) is shown in the picture at the top of the article. Some others are shown below: essentially they have the card swipe capability, a small alphanumerical keyboard, and a fingerprint scanner (either internal or external). These are meant to be operated by banking correspondents (BCs)

The rural population has some exposure to micro-ATMs via government payments (eg: MNREGA, pension, PDS and LPG delivery see below), though the distribution / coverage of this exposure is varied across the country.

Beyond the micro ATM being a modified card swipe/point of sale machine, the important feature is that a customer/agent can remotely connect to a bank’s core banking system. The purpose of the fingerprint scanner attached to it is for Aadhaar verification. As with ATMs, the banking correspondent (BC) or bank Mitr can disburse cash in remote locations where bank branches cannot reach. Micro-ATMs have been put into mobile ATM vans as a complement to ATM machines recently (but mostly in urban settings). Nandan Nilekeni expects about 1 million micro-ATMs to be pressed into service over the next few months.

The micro-ATM is portable, and lower cost than an ATM. But, unlike a regular ATM, a micro ATM is not 24 x 7: the bank correspondent (BC) is need to provide the cash. If the BC is unavailable or the shop keeper has shut his shop, the account holder will not be able to undertake any financial transaction. But as mentioned in my article on payment banks, companies like Reliance Jio, Airtel and Indian Post are rolling out payment banks, and will likely have hundreds of thousands of BC locations over the next year leveraging their existing recharge outlets. The BC network and partnerships will also be a critical strategic element in payment banks' business plans.

As shown in the IDFC Micro-ATM picture at the top of the article, you can even open bank accounts with e-KYC, transfer money via IMPS/NEFT (remittances), make utility payments and seed/link a bank account with Aadhar. A bunch of non-financial services involving bank accounts is also provided. The payments involving Aadhar are enabled by Aadhar-enabled Payment System (AEPS).

Aadhar-enabled Payment System (AEPS)

Aadhaar Enabled Payment System (AEPS) is a new payment service offered by the National Payments Corporation of India to banks, financial institutions using ‘Aadhaar’ number and online UIDAI authentication through their respective Business correspondent service centres.

A customer can avail the following four services using AEPS: Cash Withdrawal, Cash Deposit, Balance Enquiry and Fund Transfer. AEPS functions through the National Financial Switch of NPCI, which is also used for routing inter bank ATM transactions and Interbank Mobile Payment Service (IMPS). The customer needs to have a bank account linked to his/ her Aadhaar number with the bank offering the AEPS service. A customer can link more than one account within a bank to the same Aadhaar number. However the bank shall keep only one of the accounts as primary account which would receive all AEPS transactions.

In addition to Aadhaar number and fingerprint data input, one of the pieces of information needed for AEPS is the IIN (a six-digit number) which identifies the bank to which the customer has mapped his/her Aadhaar number. Each bank would be issued a unique Issuer Identification Number (IIN) NPCI. At the MicroATM Terminal the customer has two options. He/she can either manually input the required information in the respective fields or he can swipe a RuPay ATM & MicroATM card with Aadhaar number that would extract the relevant data from card and present for further transaction processing. An example flow is shown below (for cash deposit):

Aadhaar payments is part of a broader portfolio of Aadhaar enabled services including Aadhaar Payments Bridge (APB) which is used for Direct Benefits Transfer (DBT), and MNREGA payments etc. The common element is the UIDAI Authentication System for online Aadhar/biometric authentication, via the NPCI switch. The NPCI switch interacts with the (acquirer, issuer) bank switches, which in turn interact with the banks' core banking systems (CBS).

A reason why this technology can be broader-based is because 1.08 crore Indian residents have Aadhaar cards (and the rest are likely to come into the fold very quickly this year). The Aadhaar number can also be used in principle as an ID to send / receive money once it is linked to the bank account number. Currently the RuPay / Debit card + Aadhar number + biometric is used. The Aadhar number / biometric also facilitates e-KYC to open new accounts for the unbanked. The combination of recent government incentives, and massive rollout of micro-ATMs augurs well for cashless inclusion over the next 12 months. Another key requirement is to ensure connectivity of these micro-ATMs and banking correspondents (BC) in rural areas with at least GPRS (2.5G data service). The rollout by telco-led payment banks is positive in this regard since it is in their interest to ensure connectivity to rural bases and BC locations.

National Unified USSD Platform (NUUP)

The Universal Payments Interface (UPI) which we have discussed earlier is brilliantly simple, secure, but requires users to have a smart phone (which costs ~$50 in India). Only 25-30% of India's population has a smartphone, while another 30+% have feature phones, and others have a basic mobile phone.

The NUUP (National Unified USSD Platform) is a USSD based mobile banking service from NPCI that brings together all the Banks and Telecom Service Providers. In NUUP, a customer can access banking services by just pressing *99# from his/her mobile phones. This service works across all GSM mobile handsets. (Although when I tried it from my smartphone, it did not set up well, an interesting anecdotal obsvn).

Unstructured Supplementary Service Data (USSD) is a technology unique to GSM (Global System for Mobile Communications) handsets. It is a capability built into the GSM standard to support transmitting information over the signalling channels of the GSM network. USSD provides session-based communication, enabling a variety of applications. USSD technology, which was primarily used in the field of telecommunication, is going to make a significant impact in the field of banking services through NUUP. RBI, in its guidelines for Mobile Banking Service, has prescribed a ceiling of Rs. 5000 per transaction for NUUP.

In terms of financial services, NUUP allows:

• Fund Transfer using Mobile number and MMID (mobile money ID which they have to get from their bank). User can transfer fund by using MMID and Mobile number of the Beneficiary.
• Fund Transfer using IFSC and Account No. - User can transfer fund by inputting IFS code and Account number of the Beneficiary.
• Fund Transfer using Aadhaar- User can transfer fund by giving the Aadhaar number of the Beneficiary.

A sample set of screenshots for NUUP/USSD is shown below: (source: www.pmjdy.gov.in, and NPCI FAQ ):

The advantages of NUUP include (source: NPCI FAQ)

Accessible through common code -*99# across all Telecom Service Providers. Works across all GSM mobile handsets. GPRS is not required- works only on voice connectivity. No application installation required on the mobile handset and the service also has interactive menu. Round the clock availability (functional even on holidays). Provides variety of Banking and Value added services. Provides Additional channel for banking and a Key catalyst for spreading financial inclusion reach. No additional charges while roaming. The Service is available to all customers having a Bank account. A customer needs to register himself/herself for mobile banking. The customers already using mobile banking service will be able to use the service over USSD without any additional registration by just dialling *99# from their handset. The users, not registered for mobile banking service have to contact their respective banks for the registration.

However, the number of steps is still too many, and an ergonomic barrier for adoption. For example, if UPI style Virtual Payment Address (VPA) registration can be done with the bank, there is no need for entering IMPS-level details (eg: IFSC codes, bank accounts etc) even with NUUP. In other words, the target VPA (eg: name@bank ) could be used to simplify the number of inputs in NUUP.

Offline Cashless Transactions: Early Examples

NPCI switch offers a number of backup options and dispute resolution methods when there is a drop in connectivity. But given spotty data coverage in rural areas, there is a need for other alternatives. The fundamental problem is how to close the online authentication and core banking access that is needed.

Current alternatives that claim to provide "offline" cashless transactions, depend upon 2G voice / USSD connectivity being available. The idea is to use the 2G channel to get a one-time pin / credential to offer to a merchant for a payment. Another possibility is to use 2G/USSD workflow, and translate/transmit information entered via a smart phone or micro-ATM. These methods appear to be used by companies like ePaisa who are forming partnerships with mobile wallet companies. Risk management around settlements is necessary as well. These are still early initiatives, and time will tell how good they are, also under conditions of emergencies (eg: natural disasters etc) when both the 2G and data networks may be down.

Summary

I have used the term "cashless inclusion" to refer to making it easy for the cashless substitute to reach rural and informal sectors of the Indian economy. Given the growth of Jan Dhan, availability of Kisan cards, recent incentives for cashless use, and the short term pressure on currency notes being available, on paper one should expect a surge of usage. While this true in the urban setting where there is an ecosystem of POS machines, ATM machines etc, and a consumer base that will drive merchants to adopt POS machines, the situation in the rural front is more challenging due to the lack of such an ecosystem, and lower levels of financial/banking literacy.

This article complements my prior posts to look at how to drive more inclusion for the cashless transition via micro-ATMs, Aadhaar-enabled payment system (AEPS), USSD-based payments, and offline wallets/transaction methods. We also look at necessary improvements, especially in ergonomics/ease-of-use without compromising security, and the need for a sustained campaign of financial literacy. The next 3-6 months will be crucial in driving up such a rollout, and making the "aam aadmi" more comfortable in the use of such cashless alternatives, and getting merchants more out of the informal economy.

Twitter: @shivkuma_k

ps: Part of a set posts: "Payment Banks: Reliance Jio vs Airtel & More" , "Financial Inclusion post demonetisation", "Cashless Finance & Universal Payment Interface (UPI)" , "Cashless boosted by demonetisation ...", "Barter & Cash to Cashless & Blockchain... " , "Service vs As-a-Service ... "

ps: List of all my LinkedIn Articles