MUMBAI: This could be a sign of what the future holds for Aadhaar. Amid an alarming rise in credit card frauds, data thefts and card cloning, a group of bankers will decide in a month the appropriate payment technology for the Indian banking system and retail consumers.

If the group votes for EMV - an internationally accepted technology standard for authenticating credit card, debit card and ATM transactions - Aadhaar, which is comparatively untested and follows a different technology, may face an uncertain future. EMV is a joint initiative between Europay, Mastercard and Visa - the world's leading payments service providers.

Credit and debit cards that are based on EMV have the card and CVC numbers, which are the key to any electronic transaction, hidden or encrypted. Since encrypted data reduces the risk of cloning or skimming at ATMs and merchant outlets, some of the private banks have started upgrading their systems to EMV standards following recent card frauds.

But, if the group, constituted by the Reserve Bank of India, prefers Aadhaar, banks will have to change their systems, procure biometric machines and prepare for different security standards. Bankers, however, are reluctant to spell out their stand openly because the government thinks Aadhaar can be a game changer in disbursing subsidies to people in far-flung regions.

Besides, banks, particularly the state-owned lenders, are unwilling to take on Nandan Nilekani, the former Infosys CEO who heads the Unique Identification Authority of India (UIDAI), the state-owned agency that issues the 12-digit Aadhaar numbers.

"Mr Nilekani is pursuing Aadhaar with RBI. He has a standing and has political backing," said a person familiar with the discussions.
Transition Could Take Some Time

"So, while many banks are in favour of EMV due to rising incidents of frauds, they are quiet, waiting for the committee to submit its report, which is expected by early July," said the person. If the committee recommends Aadhaar for banks, it will be a victory for UIDAI. Banks will then have to use Aadhaar for not only customer authentication, but also for payments. But even if banks are mandated to implement Aadhaar, the transition could take time and a slice of the market will move back to cash. So, it will be some years before Visa and Mastercard feel the threat.

Indian banks' payments technology for retail customers is currently at crossroads. ATM transactions are processed through the state-backed National Payments Corporation, which is being positioned as an umbrella organisation for processing all retail payments, while credit and debit card transactions are processed by multinationals like Visa and MasterCard. National Payments Corp, headed by Nilekani's former boss NR Narayana Murthy, is unable to support EMV at present for its network and will have to change its standards if EMV is implemented by banks.

"What's drawing banks towards EMV -- and many Asian banks have already migrated to it -- is the vulnerability of the magnetic stripe technology that's used for credit and debit card transactions today. Micro devices can be planted in ATMs machines to copy the magnetic stripe and scan the PIN to clone cards. This is not possible in EMV where the data is encrypted," said a banker.

Highlighting the monopolies in the industry being created, the Financial Sector Legislative Reforms Commission (FSLRC) has recommended the Competition Commission to look into the subject. Meanwhile, the RBI governor has set up a committee to come out with a discussion paper on Aadhaar as an additional factor of authentication for card transactions. While Aadhaar can be used for authentication and KYC purposes, the regulator would like a final answer on whether it can be used for payments.