Short Note: Aadhar Enabled Payment System (AEPS).

After the landmark policy decision of demonetization last year, India is now transitioning towards digital transactions. To make this possible, the government is putting efforts to make the digital transactions easier for the customers. One of such effort is Aadhar Enabled Payment System (AEPS).

Aadhaar Enabled Payment System is a payment service empowering a bank customer to use Aadhaar as his/her identity to access his/ her respective Aadhaar enabled bank account and perform basic banking transactions like balance enquiry, cash deposit, cash withdrawal, remittances through a Business Correspondent. This initiative has been taken up by National Payments Corporation of India (NPCI), which is an umbrella organization for all retail payments system in India and was started by joint efforts of Reserve Bank of India (RBI) and Indian Banks’ Association (IBA).

How does AEPS work?

The AEPS system leverages Aadhaar online authentication and enables Aadhaar Enabled Bank Accounts (AEBA) to be operated in anytime-anywhere banking mode through Micro ATMs.

The beneficiary bearing a UID number approaches a business correspondent (BC) with the request to withdraw cash. A Business Correspondent (BC) is an approved Bank Agent providing basic banking service using a Micro ATM. The business correspondent feeds beneficiary’s UID number, fingerprints and amount into the micro-ATM. A micro ATM is a biometric authentication enabled hand-held device (also known as a Point of Transaction or PoT terminal) which serves as the doorstep banking system. Micro- ATM can perform all types of transactions including deposits and C2C transfers. The Aadhaar server authenticates the beneficiary’s ID and gets his bank account using the ID mapper. Once this is successful, the debit and credit transaction is carried out and then a message is sent to the beneficiary and BC and beneficiary gets his cash.

There are two forms of payment systems under the AEPS. The first facilitates crediting money into the beneficiary accounts, whereas the second enables account-holders to withdraw their cash.


The benefits of the AEPS are many including:

  • It will ease the payments which will be done at the doorstep instead of travelling long distances.
  • The operational efficiency of banks would increase because of minimized queuing.
  • The transactions now would be more accurate and fast.
  • The middlemen who exploited the poor and illiterate would now be eliminated.
  • Interoperable system ensures that customer is not tied to one bank’s BC
  • Banks do not need to invest in enabling capture of biometrics
  • No Fraudulent activity would be encountered as it works on Bio-Metric Data Authentication
  • No Need to Carry any Debit Card now for payments, it is just required to carry a photocopy of Aadhar Card or Aadhar Number.
  • Easily transfer Funds through Aadhaar to Aadhaar.

Aadhaar is the best solution which can be integrated with an existing social welfare scheme. After the demonetization, the digital and paperless transactions have really caught a hype and Aadhar based payment system is a brilliant step towards the same. It might not completely remodel the existing system but could help it reform. Success of the AEPS depends on the support it receives from other stakeholders which includes the state government and banks.