Mains Paper 2: Governance | Government policies & interventions for development in various sectors & issues arising out of their design & implementation.
From UPSC perspective, the following things are important:
Prelims level: Aadhaar Virtual ID, AUA (Authentication User Agencies) Types
Mains level: Issues created due to the implementation of aadhaar
Virtual IDs for eKYC
- The Unique Identification Authority of India’s (UIDAI’s) plan to make non-banking financial companies (NBFCs) use Aadhaar Virtual IDs to authenticate customers from 1 July has put these firms in a fix.
- The government introduced 16-digit virtual IDs in a bid to address privacy concerns around sharing Aadhaar numbers at the time of authentication.
- Earlier, the Aadhaar data of all customers were synced with credit bureaus, which allowed NBFCs to do eKYC without the need for physical verification, said a digital strategy officer of a top NBFC.
Lending is difficult due to Virtual IDs
- NBFCs pointed out that using virtual IDs will give them access to limited details about the customers, which may make lending more difficult.
- Since virtual IDs mask the Aadhaar number, NBFCs believe the cost of customer acquisition will rise as they have to do additional physical checks.
- NBFCs also point out that many customers are not fully aware of Aadhaar virtual IDs as UIDAI is yet to publicize this new system.
- These firms are concerned that it would be left to them to push customers to register for virtual IDs, increasing the cost of customer acquisition.
Problem with UIDAI’s AUA Classification
- UIDAI has recently classified entities as global AUAs (authentication user agencies) and local AUAs, depending on their access to Aadhaar data for customer verification.
- Banks and life insurers have been categorized as global AUAs and allowed to use Aadhaar numbers to do an eKYC verification.
- On the other hand, NBFCs, home financiers, prepaid instrument issuers and telecom companies have been classified as local AUAs and must use Aadhaar virtual ID to perform a one-time-password-based customer authentication.