In the last few years, Aadhaar Enabled Payment System (AEPS), one of India’s key digital payment systems, has seen a noticeable decline. From April 2022 to September 2024, AEPS transaction volumes fell from ₹27,900 crore to ₹23,600 crore, with total transactions dropping slightly from 20.5 crore to 20.2 crore, as per data from the National Payments Corporation of India (NPCI). Despite being widely used, the reduction highlights certain factors influencing its popularity.
What is AEPS and How Does it Work?
The AEPS, developed by NPCI, was designed to provide basic banking services to customers through Business Correspondents (BCs) who operate on behalf of banks. AEPS transactions enable users to check balances, deposit, and withdraw cash by simply using their Aadhaar number and fingerprint verification, even without a debit card. AEPS has been crucial in reaching people in rural and semi-urban areas who have limited access to traditional banking.
The government also relies on AEPS for transferring subsidy payments directly into beneficiaries’ bank accounts. However, while AEPS remains popular, recent data shows that customers aren’t increasingly adopting it, and certain shifts in user interest are emerging.
The Impact of Subsidy Transfers and User Engagement
AEPS transaction volume and value tend to spike during months when the government transfers subsidies to people’s accounts. Once subsidies are deposited, recipients often use AEPS for immediate withdrawals, which temporarily increases transaction volumes. But in months without subsidy transfers, transactions and usage decline. This suggests that users might see AEPS as a convenient tool primarily for receiving subsidies rather than for regular banking needs.
Inter-Bank Transaction Restrictions Affect AEPS Use
A major reason for the dip in AEPS transactions involves inter-bank transaction restrictions. According to Reserve Bank of India (RBI) guidelines, Business Correspondents can handle transactions for customers of different banks, enabling smooth inter-bank services. But recent concerns over fraud led to the RBI mandating fingerprint verification of BCs for every transaction to prevent misuse.
While the verification step effectively reduced fraud, it also introduced limitations. Many banks, particularly government ones, started declining AEPS transactions initiated by BCs of other banks. This “inter-bank decline” restricts users to their specific bank’s BCs, making the service less convenient and reducing AEPS’s overall transaction volume.
Banks’ Concerns and AEPS Future
Banks have cited security reasons, stating they are not fully aware of account holders from other banks. This has led some banks to insist that customers visit their own branches for transactions. As a result, inter-bank AEPS services have become less accessible, reducing its overall usage.
This decline in AEPS is likely to persist unless regulatory improvements or clearer inter-bank operational guidelines are established. For now, AEPS’s future growth may depend on addressing these security measures, as well as refining the framework for inter-bank transaction handling.
