Fintech startups unlikely to gain from Bill to amend Aadhaar Act

In the wake of the Supreme Court order banning mandatory use of Aadhaar ID by private firms, the central government has introduced a Bill in the Lok Sabha aimed at voluntary use of biometric Aadhaar ID for opening a bank account and getting a mobile phone connection.

With this, only telcos and banks stand to benefit while others will have to make do with workarounds.

While introducing the Bill, Union minister Ravi Shankar Prasad said that the Bill’s proposed legal changes were in compliance with the Supreme Court judgment in September which struck down the use of Aadhaar-based KYC by private entities for verification.

To bring about the necessary changes, the Bill seeks to tweak three laws governing Aadhaar, telecom sector, and banking regulation.

Besides giving a minor an option to opt out of the 12-digit identity, the Bill provides for stiff penalties for violation of norms governing the use of Aadhaar. The Bill has introduced a section on civil penalties which says that entities which fail to comply are liable to penalty extending to Rs 1 crore rupees for each contravention, with additional penalty of Rs 10 lakh for every day during which the failure continues after the first contravention.

The opposition pointed out that the Bill was in violation of the apex court judgment of September and violated the right to privacy, according to media reports.

TechCircle had reported in December that the Union Cabinet had okayed proposed changes to laws in a bid to allow optional Aadhaar-based KYC for opening a bank account or getting a new SIM.

The proposed changes, the report had said, would allow consumers to use Aadhaar voluntarily, easing the load of paperwork and enabling low-cost solutions for technology companies, financial institutions and telcos.

The Supreme Court’s September order had resulted in businesses moving to paper-based KYC. Some companies were also exploring Aadhaar QR-code-based verification as well as image recognition tools for KYC. Fin-tech companies, digital lenders and others saw a slowdown in business as they looked for alternatives to Aadhaar based e-KYC. Cellular Operators Association of India (COAI) had previously suggested that Aadhaar QR code verification might be used in lieu of OTP (one-time password)-based e-KYC, which requires the holder to be physically present at the verification point.