UIDAI Stops Digital Wallets, Mutual Funds From Using Aadhaar-Based Verification

India's Aadhaar-issuing authority asked digital wallets and mutual funds registrars to stop authentication using the 12-digit unique identification number.

The Unique Identification Authority of India also asked digital wallets to provide a confirmation of stopping Aadhaar-based services as well as their exit plans, according to its Oct. 12 letter. BloombergQuint has reviewed a copy of the letter.

This comes after Supreme Court last month termed Aadhaar authentication by private companies as “unconstitutional”. UIDAI had in June restricted digital wallets from accessing its database citing security concerns. It also classified banks as global authentication agencies and gave them unrestricted access to its database. Wallets, categorised as local agencies, were given on partial access.

“Since your organisation can no longer use Aadhaar-based authentication service in the light of the Supreme Court judgment, you may cease all operations with respect to Aadhaar-based authentication immediately, if not already done,” UIDAI said in the letter. These payments providers, according to the letter, have also been directed to agree with customer demands for delinking Aadhaar from their database.

Digital wallet companies like Eko India Financial Services Pvt. Ltd. and Payworld have confirmed receiving the UIDAI notice. Mutual fund registrars such as Karvy and myCAMS, and Insurance policy provider PolicyBazaar.com have also received similar notices.

But if banks can continue then it's unfair to block prepaid payment instruments, said Praveen Dhabhai, chief operating officer of Payworld, which provides financial services for semi-urban and rural consumers. “Under Reserve Bank, we are also opening accounts which have different functionalities.”

The development was first reported by the Economic Times newspaper.

The withdrawal of Aadhaar-based verification is going to hamper the business of the fintech companies that rely on e-KYC for authentication, Dhabhai said, adding it will be difficult to onboard new users using physical verification. “The entire domestic remittance will be hampered.”