Leading Up To Scepticism: The Curious Case Of Cash Withdrawal

Scepticism is mostly dangerous but sometimes appropriate. 

The Background

If you go around a village and try to understand the usage of banking services or more precisely, where do people go to withdraw cash, they would tell you that they travel 15 km on an average to reached the nearest Bank branch or Business Correspondent (BC).  

As I initially set out to evaluate the current state of affairs with respect to the reach and usage of banking services in rural communities, I saw it as a problem of “access”. It happened especially because of the popular narrative – banks are located in rural oasis centers which are far from villages, ATMs are not viable for banks or financial institutions in rural areas, customers are scattered, transaction volumes are low and so on. It was not difficult to rely on all these points, because in fact, these are true.

However, on reaching village Majawari, just 3 kms off Gogunda (where a Bank Branch is located), I saw that three agents were operating there. They are registered with a Digital Financial Services platform and provide basic banking services such as balance enquiries, cash withdrawals, deposits and transfers, etc.

I went around the village and spoke to a few people regarding their willingness of going to a bank, now that three options were available to them, just at their doorstep (almost). Most of them said that they would still prefer to go to the bank in Gogunda.

Of course there are villages which are not as endowed in terms of availability of these agents or proximity to a bank branch, yet people show a clear inclination towards visiting banks. After interviewing a few BC/ Agents*, a different side of the story appears and I may be guilty of acceding to that initially. It discredits the people in rural communities for not being open to change and technology, “Yeh gaon wale log kahan yeh sab jaante hain. Yeh istemaal nahi karenge.” (These villagers don’t know about all this. They will not use it.) 

Confused, I set out to find more answers. After a few failed attempts of getting people to express their thoughts and opinions, there were voices that appeared to come out. A baasa (elderly uncle) said, “Bank hi theek hai. Inpe vishwas nahi hai.” (I prefer the bank. I don’t trust these agents). This and a series of other conversations later, the reasons for people’s scepticism became clear.

FRAUD – A terrifying word which is supposed to have terrifying implications that often go unnoticed and unreported, especially in the rural parts of the country.

Imagine that a week’s worth of your salary just gets debited from your account one day. You don’t know where it went and how or who did it. Wait, you don’t even get to know that this happened for 15 days or a month later. Well, you would tell me that you would first re-check your bank statement, try to recall the events of that day and if nothing works, you would try calling up your personal banker and check what went wrong. Unfortunately, 60% of India does not have the means to do that. 

The Challenge

Call it a blessing or a curse, everything is on one’s fingertips these days (quite literally)! From accessing any government scheme or remittances (G2P transfers) or getting a KYC correction, accessing Public Distribution System (PDS) or performing a simple banking transaction, it can all be done through biometric verification linked to Aadhar.

In the context of banking transactions, Aadhar Enabled Payment System (AEPS) is one of the primary methods to perform transactions in rural areas. As a customer whose bank account is linked to their Aadhar card, using just a biometric verification, a simple banking transaction such as cash withdrawal can be completed. The process is fairly simple and requires the following information for the transaction to be completed:

1. Aadhar Number
2. Biometric / Fingerprint
3. Bank account number (for money transfer transactions)

However, there are certain serious concerns with the current design of the process. I shall try to explain it through a case that I came across first hand.

On 11th January, 2021, Shram Sarathi was approached by Kamla Bai**. She showed us her bank account statement which she had gotten updated two days earlier from a Business Correspondent of her Bank in Gogunda. The statement showed that a transaction worth Rs. 1900 had been done on 7th January. However, she confidently claimed that she did not withdraw money from anywhere on the said date. She did not recall who could be the BC / Agent where the biometric was given as she would often visit two or three different agents.

When she approached her Bank prior to reaching out to Shram Sarathi, the bank official disregarded her request stating that she herself had authenticated the transaction by giving her biometric. When she approached Shram Sarathi, we again tried to reach out to the bank officials. They informed us that since the transaction was not done by a BC officially registered with the bank, the Agent’s ID was not traceable through the passbook entry. Additionally, he insisted that they could intervene to identify the Agent only if an FIR was registered.

After several rounds of polite requests and emphasising on the bank’s responsibility to prevent defrauding for its customers, the official contacted the bank’s IT cell to get more details. The IT Cell was unable to help much and the official suggested that we are free to investigate further, independently. As some of the team members had interacted with a few BCs in the vicinity of Kamla Bai’s village, the search narrowed down to a few of them.

Prior to contacting any of them, it was reconfirmed with Kamla Bai if she had performed any other transaction which involved her biometrics verification near her village, during that period. She was able to recollect with certainty that she had visited an Agent to get her Bhamashah Card details updated and had given her biometric for the same. After this, the Agent was tracked with reasonable accuracy and confronted regarding the fraud committed by him.

Initially, the agent tried to elude all questions and misrepresented facts. However, after realising that his action was liable to strict legal proceedings, he conceded and agreed to return the amount to Kamla Bai. 

Unfortunately, this is not a one off case. Every day, thousands of individuals around the country are getting defrauded due to multiple factors such as:

• High level of dependence on the Agent: In most cases in rural areas, the individual is not aware of the step by step process of various transactions that involve biometric identification and as a result, he/she usually has no other choice but to believe the information being provided by the Agent.

• Transaction authentication is not foolproof: A typical banking transaction such as a cash withdrawal does not need multiple levels of authentication for the transaction to be successful. Owing to the simplicity of the process, once the biometric authentication is done, the transaction can be completed without any additional levels of authentication.

• Inadequate checks on accountability of Agents: Increasingly, agents have mushroomed in the remotest areas, providing various services along with banking transactions such as E-Mitra, mobile recharges, bill payments, etc. Many private fin-tech players are also providing these services on an App based platform. However, a bank can only track the coordinates of it’s a registered BC / Agent through the unique identification number printed on the passbook statement. Private agents are not generally traceable without a legal recourse.

• Customers prefer different Agents for different services: Customers generally visit an agent depending on the purpose such as cash withdrawals, KYC corrections, generating bank statements etc. This complicates the process of Agent identification due to non-exclusivity.

• Accountability of the Banks: Banks take responsibility for their own BCs and these are traceable through the statement on the customers bank passbook. It is difficult to trace the identity or any BC operating using any other Bank’s ID or a private app.

• Complex redressal procedures: The redressal procedure is tedious and requires filing FIRs, registering a complaint with the bank and multiple follow ups – all of which are time consuming activities that require the presence of the customer for extended periods, thus resulting in loss of multiple days of work and wages.

• Difficulty identifying fraudulent transactions: Once a transaction is completed, it is unlikely to conclusively assess whether it was a fraudulent or a permitted transaction. A transaction is assumed to be legitimate till the customer brings it to the notice of relevant authorities. Proof of the value of the transaction conducted and amount of cash handed over to the customer is not available as receipts are generally not provided by agents. A fraud, if committed, only gets identified by the customer when the passbook is updated at an authorised location such as the Bank appointed BC or the bank branch itself.

These are only some of the challenges that an individual faces while transacting digitally, especially in rural parts of India. Appropriate interventions on the following lines are required to overcome some of the problems in the current structure:

• Improving traceability of BCs/ Agents by developing a mechanism to capture the Agent’s coordinates when a transaction is conducted. A unique identification code for all BCs/ Agents (including Bank registered and Private agents) must be provided. The same must be displayed on the bank statement to identify the Agent.

• Increasing accountability of Agents/ BCs by putting in place regulations preventing agents from operating multiple IDs.

• Digital financial service providers and banks must regularly monitor the activities of their agents by conducting audits, developing adequate portals for reporting of fraudulent or suspected agents.

• Simplifying the redressal procedures such as filing for FIRs and complaints with the Bank must be simplified. A one step redressal mechanism has to be put in place.

• Multi-factor authentication must be integrated into the process such that there is at least one unique factor for banking related transactions. Currently, due to single step biometric authentication being used across multiple processes, it is hard for the customer to identify the nature of the transaction. Multi-factor authentication will ensure that customers are aware whether the transaction being processed is a banking or non-banking one. 

• In addition to bringing about structural changes in the whole process, there is a need to improve financial literacy and digital literacy.

* Business Correspondents (BC) and Agent is used interchangeably
** Name changed to protect identity