As India gets ready to embark on a complete digital journey, there are bound to be questions on security issues that come with such a system. As the government continues to innovate and roll out new initiatives, to cater to a widespread audience, it becomes imperative to evaluate the viability of these initiatives for India to be truly digital. On evaluation, it has been observed that despite a radical introduction to many unique ideas for a cashless system, there have been incidents of Aadhaar biometric data breach, leak of Aadhaar details and illegal access to bank accounts via UPI reported recently that raised questions and triggered debates about the vulnerability and security of the Bhim- Aadhaar platform.
Such breaches can be nerve-wrecking specially as the banking system is meant to be a highly secure environment with high volume transactions reflecting a deposit of Rs 104.69 trillion as of December 2006. With the population relying on their hard-earned savings to be safe in their accounts in the banking system, it will be detrimental and demotivating if accounts are compromised, resulting in a potential loss of one’s savings of several years for some people. Hence the breach through Aadhaar Pay is bound to create a scare with the potential security risks that may arise.
Prior to Aadhaar Pay, the closed access system of the banking network ensured utmost security and privacy, with the bank holding the onus of the control of any of its transactions. Ample security measures were taken even to establish connections with other banks, directly or indirectly through payment networks. With Aadhaar Pay, the ease of use and mass appeal also brings the associated risks with the banking system open to the entire population to make multiple transactions via applications that have been developed and operated by third parties. The sheer volume of transactions exposes a significant risk even for a small probability of security failure. Hence, in such a scenario, there is a high demand for the use of e-money or cash for day-to-day low-value payments. This method isolates the bank account from these payment modes, securing the user from the risk of losing all their hard earnings, in the event of their e-wallets or physical wallets being stolen or misplaced. While it generates ample peace of mind, it also creates immense ease of use and convenience. At this juncture of digital India, there is a lot of buzz around promoting non-bank account based digital payment services, such as prepaid payment instruments, to give people the flexibility and choices between convenience and security. These have shown tremendous popularity specially when going cashless was the “only” mantra post demonetisation. At the same time, protection of consumer funds, interoperability and anti-money laundering are still concerns for the regulatory framework and the public, even though the concerns are much smaller than bank money with the lower balance and transaction limit.
One of the methods that can be evaluated for asserting such financial care is to link the e-money system to the banking system. For example, maintaining escrow accounts at commercial banks and only cashing out through banks and transferring between e-wallets through bank payment networks. The advantage of this approach is to capitalise the established strength of the banking system. But like every positive, there is a downside. Unfortunately, the disadvantage of this approach is increasing the costs of this service.
Therefore, an alternative way to facilitate a secure and easy digital payment service is to leverage the advantages of an ideal currency like digital fiat currency, issued by the Reserve Bank, with the same legal tender status as banknotes. By injecting digital fiat currency issued by the RBI into this e-money payment system, it takes away the possibility and overriding concern of phantom money being created within the system. It brings about the advantage of interoperability by enabling the PPI service providers to interoperate with each other directly and thus driving cost efficiency. Through this method, it also isolates the banking system from the risks of the e-money systems.
Digital fiat currency is being researched as a viable option in not just India, but is being discussed and tested by several central banks globally. As India embarks on its digital vision, it becomes imperative to evolve with the most advanced, secure and cost-efficient strategy that will be easy to translate in a country that has a diverse population and differing levels of adaptability. Digital fiat currency is the payment instrument which reinforces the essential trust to the digital economy, as much as physical cash empowers the physical economy. As India marches towards setting new benchmarks, it is noteworthy that a digital tomorrow is the wave of the future, which we can endorse with pride as a thought leader and trendsetter.
