Aadhaar Enabled Payment System (AePS)

Aadhaar Enabled Payment System (AePS) is a unique Indian payment and banking service that leverages the Aadhaar biometric ID to provide basic banking services in a convenient, interoperable manner.

Launched in 2011 as part of financial inclusion efforts, AePS allows individuals to carry out banking transactions using just their Aadhaar number and fingerprint (or iris) authentication, through local agents or micro-ATM devices. It is a bank-led model operated by NPCI under the guidance of RBI and UIDAI (which manages Aadhaar).

Components of AePS Ecosystem

The AePS network involves several key players:

• Customer: The individual with an Aadhaar number linked to a bank account (the bank account could be with any participating bank). Linking bank accounts to Aadhaar is a prerequisite for using AePS, since Aadhaar will serve as the financial address.
• Business Correspondent (BC)/Agent: Also known as Banking Correspondent, these are bank-appointed agents equipped with a micro-ATM or point-of-sale device that has a biometric scanner. They serve as human ATMs or bank tellers in villages and neighborhoods. There are hundreds of thousands of such agents (also called AePS touchpoints or ATOs – AePS Terminal Operators) across India, often in rural areas where bank branches are distant. Some are individual shopkeepers acting on behalf of banks, others are organized through companies (corporate BCs).
• Micro-ATM Device: A small handheld or desktop device that can read fingerprints via a scanner, and connect to the banking network (usually via mobile data or internet). It runs specialized software that interacts with NPCI’s AePS switch. Micro-ATMs are designed per UIDAI specs so that any bank’s agent’s device can facilitate transactions for any other bank’s customer (interoperability).
• UIDAI Authentication System: The Unique Identification Authority of India’s backend which verifies the Aadhaar number and biometric data. When a customer provides their fingerprint, the device encrypts and sends it to UIDAI, which checks it against the database for that Aadhaar number. A successful match confirms the identity.
• NPCI’s AePS Switch: NPCI operates the interbank transaction switch for AePS. Once identity is confirmed by UIDAI, NPCI’s systems route the transaction request to the customer’s bank (identified via a mapping of Aadhaar number to the bank, using the Aadhaar mapper). NPCI manages the clearing and settlement among banks for the financial transactions.
• Banks (Issuer and Acquirer): The customer’s bank (which holds the account to be debited or credited) is the issuer in AePS parlance, and the agent’s bank (which employs that BC and whose micro-ATM is used) is the acquirer. These banks integrate with NPCI’s AePS network to send/receive transaction messages. Notably, the acquiring bank provides cash (for withdrawals) or accepts cash (for deposits) via the BC and later settles with the issuer bank through AePS clearing.

Services Offered

AePS currently allows several basic banking transactions:

• Cash Withdrawal: The most popular service. A customer can withdraw cash from their bank account by authenticating with Aadhaar at any BC’s micro-ATM. It works like a withdrawal from an ATM, but through a human agent.
• Cash Deposit: Many BC agents also allow depositing cash, which gets credited to the customer’s Aadhaar-linked bank account (if the agent is enabled for interoperable deposit – not all are, as noted in regulations).
• Balance Enquiry: Customers can check their account balance via Aadhaar authentication on the device. This is a non-financial transaction but very useful for people without smartphones or where passbook updates are infrequent.
• Mini Statement: Some deployments allow printing or viewing of the last few transactions in the account.
• Aadhaar-to-Aadhaar Fund Transfer: This lets a person transfer money from their Aadhaar-linked account to another Aadhaar-linked account (essentially an interbank transfer initiated via BC). This is less commonly used compared to withdrawals.
• BHIM Aadhaar Pay: A merchant version of AePS where a shopkeeper can accept payment from a customer’s Aadhaar-linked account (the merchant acts as an agent to pull money from customer to their own account). This turns the micro-ATM into a point-of-sale for merchant transactions.
• Other services: AePS framework is also used for e-KYC (electronic Know Your Customer) where, with customer consent, the Aadhaar details can be fetched for opening bank accounts, etc., by verifying biometrics.

How AePS Works (Transaction Flow)

Suppose a villager wants to withdraw ₹1,000 from her bank account but there’s no ATM or branch nearby. She can go to the local BC (perhaps at the village store):

1. The BC (acquiring bank’s agent) will launch the micro-ATM app and select “Aadhaar Cash Withdrawal”.
2. The customer provides her Aadhaar number or may input it on the device. She also selects her bank’s name from a list (since the same Aadhaar could be linked to multiple accounts, though typically one uses their primary account).
3. She enters the amount to withdraw (₹1,000).
4. She presses her finger onto the fingerprint scanner. The device captures her biometric and sends it, along with Aadhaar number and transaction details, to NPCI/UIDAI for authentication.
5. UIDAI checks the fingerprint against its records for that Aadhaar. If matched, it sends an “Authentication Successful” response.
6. NPCI’s AePS switch, knowing the bank (from Aadhaar mapper or selection) routes the debit request to the customer’s bank (issuer). The bank verifies account balance and debits ₹1,000 from the account, then sends approval.
7. The BC’s device shows a success message. The agent hands ₹1,000 in cash to the customer and often a receipt is generated.
8. Settlement: At a scheduled interval, NPCI computes that the customer’s bank now owes ₹1,000 to the BC’s bank (since the BC gave out cash on behalf of the system). The interbank settlement for all AePS transactions is done through RBI (often on the same day). The acquiring bank will get the money back it paid out, and the issuing bank’s reserve account will be reduced accordingly.

All this happens in roughly 15-30 seconds at the front end – very quick given the complexity behind. For the customer, it feels like a simple withdrawal with biometric instead of a PIN.

Limits

AePS is typically used for micro-transactions. Per transaction, NPCI sets a maximum of ₹10,000 for cash withdrawal or deposit. This is to mitigate fraud risk and also because BCs carry limited cash. Many banks also impose a daily limit (often ₹25,000 or ₹50,000 total) for AePS transactions per customer. These limits help control losses in case of any misuse. AePS does not require any minimum amount (you could withdraw even ₹100 if the agent has change).

Usage in Rural Financial Inclusion

AePS has been a game-changer for financial inclusion:

• It brings banking to the doorstep of people in rural and remote areas. Villagers do not need to travel long distances to a bank branch; basic needs are met locally.
• It has enabled the government’s Direct Benefit Transfer (DBT) Subsidies, pensions, MNREGA wages, etc., are often credited to beneficiaries’ Aadhaar-linked bank accounts (via another NPCI product, Aadhaar Payment Bridge). Those beneficiaries then withdraw their cash through AePS at a local BC, which is far more convenient than going to a bank and often free of charge to them. This has reduced leakages and middlemen – money goes directly to the entitled person and they can authenticate themselves to withdraw it.
• AePS is interoperable – any bank’s customer can use any agent. For example, a Bank of India customer can withdraw money at a Bank of Baroda BC outlet, because all transactions go through the central switch. This wide interoperability greatly expands service coverage with relatively few agents per village.
• It promotes a cash-lite economy gradually by also enabling deposits and transfers. People can deposit surplus cash at their doorstep, which increases deposits in the banking system. Merchants can accept digital payments via BHIM Aadhaar, reducing dependency on cash.
• AePS only needs the person’s fingerprint/iris and Aadhaar – no need for them to remember PINs or carry cards. This simplicity is useful for the less literate population. Biometric ID also adds security – only the person themself can initiate a transaction (though fraud can happen via cloned fingerprints or users being tricked, security measures are being enhanced to mitigate this).

Security and Challenges

Biometric authentication means that transactions are highly secure as they require the person’s live fingerprint or iris – something not easily stolen like a PIN. However, fraudsters have found social engineering ways (like using silicone fingerprints or coercing people). Also, there have been instances of Aadhaar-linking fraud. In response, NPCI has implemented a fraud risk management system for AePS that monitors suspicious patterns in real time and alerts banks. Recent RBI guidelines aim to tighten agent onboarding and monitoring to prevent rogue actors in the network. The system is evolving with additional safeguards.

Costs and Interchange

Banks incur costs for AePS transactions – the issuer bank pays a small interchange fee (about 0.5% of transaction, max ₹15) to the acquirer bank for each withdrawal, since the acquirer provided the service and cash. The government had temporarily borne some AePS transaction costs to promote usage. Typically, customers are not charged for basic withdrawals up to a certain number per month at BCs, similar to ATM rules for financial inclusion accounts.