BHIM-Aadhar Payment System

The BHIM Aadhaar platform and application seek to minimize the role of plastic cards and point of sale machines, which hitherto are believed to be essential for cashless transaction.  Under this, a customer has to link his bank account with his Aadhaar number. As of now, around 40 crore bank accounts are already linked to Aadhaar. The Merchants will be given a biometric reader that can be attached to a mobile; and will also have to download an app.

The customer will have to key in his Aadhaar number, the amount to be paid and then authenticate using the biometric reader. If the biometrics match, the amount is instantly debited from the buyer’s account and credited to seller. Thus, two different activities take place when a thumbprint is used to authorise a payment: it queries the Aadhaar database to identify the owner of the print and his Aadhaar number, then a separate transaction deducts the amount to be paid from the bank account linked to that Aadhaar number and credits it to the account linked to the terminal capturing the thumbprint. Both these transactions make use of the National Payments Corporation of India’s facilities. It is assumed that the cost of running these transactions would be reimbursed from the government’s Financial Inclusion Fund, which is a Rs. 2000 Crore fund created in 2015. The merchant and the consumer would be spared any charge for making the payment digitally. For a customer, having an Aadhaar number is enough to make cashless transaction and there is no need to have a smartphone or plastic card.

The first main advantage of this method is that the customer will not have to pay any charge for using BHIM-Aadhaar platform. Second, this mechanism is capable to eliminate the fee payments for service providers such as card companies (MasterCard, VISA etc.). This fee was one of the main stumbling block on merchants switching to digital payments. Thus, it makes affordable cash transactions for both the customers and merchants. Merchants also get a 0.25% of transaction value as incentive.

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