Aadhaar virtual IDs becoming a real problem for NBFCs

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Note4students

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


News

Virtual IDs for eKYC

  1. 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.
  2. The government introduced 16-digit virtual IDs in a bid to address privacy concerns around sharing Aadhaar numbers at the time of authentication.
  3. 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

  1. NBFCs pointed out that using virtual IDs will give them access to limited details about the customers, which may make lending more difficult.
  2. Since virtual IDs mask the Aadhaar number, NBFCs believe the cost of customer acquisition will rise as they have to do additional physical checks.
  3. NBFCs also point out that many customers are not fully aware of Aadhaar virtual IDs as UIDAI is yet to publicize this new system.
  4. 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

  1. UIDAI has recently classified entities as global AUAs (authentication user agencies) and local AUAs, depending on their access to Aadhaar data for customer verification.
  2. Banks and life insurers have been categorized as global AUAs and allowed to use Aadhaar numbers to do an eKYC verification.
  3. 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.
Aadhaar Card Issues
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