India: Payment companies to stop using Aadhaar services

October 25, 2018


The tech-driven transformation of India attributable to the increased accessibility of internet to the multiple users of the vast nation have enabled the virtual platform to carry out numerous routine operations. Providing channels for communication, commercial transactions, banking, record maintenance, e-services allow efficient mechanism reducing the dependence on the physical media. Digitalization has facilitated the process of identification of citizens of the country being a more reliable source of proof in the form of Aadhaar.


The Unique Identification Authority of India (hereinafter referred to as “UIDAI”) – the statutory authority established under the provisions of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (hereinafter referred to as “Aadhaar Act”) issues a 12-digit unique number (hereinafter referred as “UID” or “Aadhaar”), allocating a distinguished identity to all residents of India. Based on the biometric and demographic data comprising of information such as a photograph, ten fingerprints and two iris scans, which are stored in a centralised database, eliminates the probability of duplicate and fake identities and is a cost-effective and easy source of authentication.

The Supreme Court judgement

Vide its judgement dated September 26, 2018, the Apex Court ordered for scrapping of the provisions of Section 57 of the Act, which allowed private entities which used Aadhaar for verification purpose.

This approach of the Supreme Court was aimed at minimizing the use of Aadhaar based biometric authorization by private sector businesses and institutions thereby reducing the risk of identity theft and other forms of forgeries and preventing the intrusion of the privacy of the people of the country.

The impact

In the light of the aforesaid order of the highest judicial authority, the UIDAI has directed a number of non-banking payment companies to stop offering any Aadhar based services on their platforms.[2]

UIDAI has required such companies to provide confirmation of closure and exit from the usage of the Aadhaar ecosystem. Many payment companies depended upon the Aadhaar infrastructure mainly to take onboard new customers as per the Reserve Bank of India regulations mandating the mobile wallets to ensure compliance to electronic ‘Know Your Customer’ norms. Aadhaar based verification process had not only been less expensive but also sufficied the requirement of an identification proof in absence any other evidence of residence or income.

Reinforcing the fundamentals stated in the recent Supreme Court judgement, the UIDAI has starting taking up stringent measures for curbing the use of Aadhaar authentication process by private companies.

[1] Justice K.S. Puttaswamy (Retd.) and Another Vs. Union of India and Others [SC Writ Petition (Civil) No. 494 of 2012]

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