NPCI asks banks to enable customer onboarding onto UPI through Aadhar, OTP

To further deepen the adoption of digital payments in the country, National Payments Corporation of India (NPCI), the umbrella body for retail digital payments, has asked banks to enable onboarding of customers onto UPI by authentication through their Aadhar cards with a one-time password (OTP).

Under the existing mechanism, customers who have debit cards can get onboarded onto UPI by simply keying in their phone numbers and the last six digits of their debit cards. A debit card is mandatory to set the UPI PIN under the current system, thus restricting access to the payments platform only to users who have a debit card. Now, by enabling onboarding through Aadhar, customers who do not have a debit card, or whose debit card is not active, can easily get onboarded to the platform and set or reset their UPI PIN.

NPCI had come out with this circular in September last year and had asked banks to comply with the provisions of the circular by December 15, 2021, which later got pushed to March 15, 2022. “While the process is live on NPCI’s systems, banks, payment service providers, and third party applications may take nine to twelve months to be fully offering this”, said a source aware of the development.

“This enablement will go a long way in increasing inclusion of customers across the country to digital payments, since Aadhar number is now available with almost all Indian citizens. Also, onboarding using Aadhar with OTP acting as the second factor of authentication opens up a safe, secure, and convenient alternative onboarding channel, thereby increasing digital footprint," the circular said.

In this architecture, NPCI will connect with the Unique Identification Authority of India (UIDAI) on behalf of the customer's bank to seek authentication, and validation of Aadhar OTP will be done as per UIDAI guidelines.

However, it is important to note that banks have to ensure that the facility of UPI on-boarding using Aadhar with OTP will be available only if the UPI application is being used on a mobile having an Aadhar registered mobile number and the same mobile number is registered with the bank. Also, the issuer bank has to verify the Aadhar holder’s mobile number, in addition to OTP authentication.

The need for authentication through Aadhar with OTP arose because the number of UPI users was getting restricted to the customers who had debit cards. As of January 2022, there are over 940 million debit cards in the country. Also, as per Pradhan Mantri Jan Yojana data, of 448.2 million customers who have opened a bank account under the scheme, only 314.6 million have been issued debit cards, which indicates that there are many customers who have a bank account but do not have a debit card, hence restricting their access to UPI.