Virtual ID (VID)

Virtual ID (VID) is a temporary, revocable, and random identification number issued to users of Aadhaar to enhance privacy and security in identity-based transactions. In the context of banking, finance, and the Indian economy, the VID plays a critical role in balancing digital efficiency with data protection. As India increasingly relies on digital identity for financial inclusion, subsidy delivery, and electronic payments, the VID has emerged as an important mechanism to reduce risks associated with misuse of permanent identity numbers.
The concept of VID reflects India’s broader approach to building secure digital public infrastructure while addressing concerns related to privacy, surveillance, and identity fraud. Its relevance extends across banking operations, fintech innovation, regulatory compliance, and trust in the digital economy.

Concept and Meaning of Virtual ID (VID)

A Virtual ID is a 16-digit temporary number generated by an Aadhaar holder as an alternative to sharing their Aadhaar number. It can be used for authentication and e-KYC purposes in place of the actual Aadhaar number. The VID is mapped to the Aadhaar number at the backend and can be regenerated by the user periodically.
The key feature of VID is that it is revocable and changeable, unlike the Aadhaar number, which is permanent. This reduces the risk of identity theft and unauthorised profiling. Even if a VID is compromised, it cannot be used to derive the Aadhaar number.
The VID framework has been introduced and managed by the Unique Identification Authority of India, which oversees the Aadhaar ecosystem.

Rationale for Introducing VID in India

The increasing use of Aadhaar for banking and financial services raised concerns over data security and privacy. Aadhaar numbers were being used across multiple platforms, increasing the risk of leakage and misuse.
VID was introduced to:

• Minimise the exposure of Aadhaar numbers
• Strengthen user control over identity usage
• Enhance trust in Aadhaar-based authentication
• Align digital identity systems with data protection principles

In a rapidly digitising economy like India, ensuring secure identity verification is essential for maintaining confidence in electronic financial systems.

Virtual ID and the Banking Sector

In banking, identity verification is central to account opening, customer onboarding, and regulatory compliance. Aadhaar-based e-KYC significantly reduced onboarding costs and time, but also created dependency on a single permanent identifier.
With the introduction of VID, banks can perform Aadhaar authentication and e-KYC without storing or processing the Aadhaar number itself. This reduces compliance risk and data security liability.
Key applications of VID in banking include:

• Opening savings and current accounts
• Periodic KYC updates
• Authentication for digital banking services
• Verification for credit and loan processing

The use of VID supports safer digital banking operations while preserving the efficiency gains of Aadhaar-enabled systems.

Role of VID in Financial Inclusion

Financial inclusion is a major objective of India’s banking and financial policy. Aadhaar-based identification enabled millions of unbanked individuals to access formal financial services. VID strengthens this inclusion model by addressing privacy concerns that could otherwise undermine public trust.
For economically weaker sections and rural populations, VID ensures that identity verification remains simple without increasing the risk of misuse of personal data. This helps sustain participation in digital financial systems and government-backed banking initiatives.
By making identity authentication more secure, VID indirectly supports inclusive growth and confidence among first-time users of formal finance.

Virtual ID in Digital Payments and Fintech

India’s digital payments ecosystem relies heavily on secure and real-time authentication. Payment platforms, fintech companies, and banks frequently require identity verification for onboarding and transaction validation.
Although payment systems such as those operated by the National Payments Corporation of India do not require Aadhaar authentication for routine transactions, Aadhaar-based e-KYC using VID is often used during initial onboarding for wallets, payment banks, and fintech apps.
The VID helps fintech firms:

• Reduce data storage risks
• Comply with privacy-focused regulations
• Build user trust in digital platforms
• Avoid long-term dependence on permanent identifiers

This is particularly important in a high-volume digital payments environment where data breaches can have systemic consequences.

Regulatory and Legal Context

The regulatory framework governing VID usage is shaped by judicial rulings and policy reforms related to Aadhaar. The Supreme Court of India upheld Aadhaar’s constitutional validity while restricting its mandatory use and emphasising data protection.
In response, VID was positioned as a privacy-enhancing tool. Financial regulators such as the Reserve Bank of India support secure and minimal data usage in customer identification processes.
Banks and financial institutions are required to:

• Accept VID as a valid identifier for Aadhaar-based authentication
• Avoid storing Aadhaar numbers when VID is used
• Ensure secure handling of authentication data

These measures aim to reduce identity-related risks in the financial system.

Economic Significance of VID

At the macroeconomic level, VID contributes to the stability and credibility of India’s digital economy. Trust in digital identity systems is essential for:

• Scaling digital banking
• Expanding online financial services
• Efficient delivery of subsidies and benefits
• Encouraging fintech innovation

By lowering the risk of identity fraud and data misuse, VID reduces potential economic losses arising from cybercrime and financial fraud. This enhances the overall resilience of the financial system.
Furthermore, VID supports India’s ambition to position its digital public infrastructure as a model for other developing economies.

Advantages of Virtual ID in Banking and Finance

The adoption of VID offers several advantages:

• Enhanced privacy and reduced data exposure
• Lower risk of identity theft and fraud
• Greater user control over personal information
• Continued efficiency of Aadhaar-based e-KYC
• Reduced compliance and reputational risk for banks