Digital Identity and Aadhaar

 

Digital Identity and Aadhaar

Introduction

The end of the twentieth century witnessed a revolution in computing power, access to information and the evolution of the internet. All the frontiers of human activity, from manufacturing to finance and transportation to communication have been subject to increasing digitization. With the world pushing itself into the fourth industrial revolution, it is certain that the future would see even more digitization. The massive benefits are also accompanied by some shortcomings of a highly connected world.

 A case in point is the banking and financial services industry. The ever-increasing reliance of the banking sector over the internet and its progressive digitization comes with its own set of risks. It may be due to increasing vulnerability inherent to digitization or from the massive growth in transaction volumes, which often bring challenges with scale. The exposure to financial crimes arising due to fraud can never be stressed enough. Also, it is important to note that the conventional approaches taken by financial institutions to handle and tackle these threats are nowhere close to adequate. No matter how many times the regulators revise and update their regulations, frauds like money laundering and illegal trafficking seem to be on the rise. In 2018, it was noted at the World Economic Forum that fraud and financial crime was a trillion-dollar industry, reporting that private companies spent approximately $8.2 billion on anti-money laundering (AML) controls alone in 2017. To acknowledge the cost associated and not only the counts, it was estimated in the same study that for every dollar of fraud, institutions lose nearly three dollars, once associated costs are added to the fraud itself.^[1] 

Digital identity (along with blockchain) has emerged as one of the major tech-based solutions to combat these financial frauds. Digital Identification is the identification that can be authenticated digitally. With the emergence of the information age, traditional paper-based identification systems have started to become out of touch with the realities of the world. There is a newfound convenience for both the user and administration in using digital means for identifying persons or even corporate entities, gaining pace with its increasing social acceptance. 

To understand how having digital identities help institutions deal with financial crimes, it would help to first delve on the nature of those crimes and what makes it so difficult to trace the perpetrators. With many layers involved in hiding the identity of an entity involved and their connections with other entities in such fraud, it often gets tremendously difficult to track these activities. Add to that the compounding complexities emerging due to the incrementing shift of financial activities to the online space as online activities are easier to anonymize and even easier to hide. A proper digital identity infrastructure allows the tracking and analysis of the true identity of individuals, their connections and their activities in a much more accurate manner than today’s analog version. 

Just as the financial world begins to rely more and more on digital identification, various other benefits of it have been acknowledged. Digital IDs are being adopted for use in government services delivery, registrations, contract enforcement, land registration, etc, Governments and institutions around the world have started experimenting with digital IDs and many innovative use cases are being tried around the world

Global Adoption of Digital ID  

There are many instances of application of digital identification networks across the world in both public as well as private sectors. They might differ in their objectives or in the technology that underpins them, but the principle remains the same, i.e., to create a unique, distinct persona for all the users. 

Within the public sector itself we can find some form of digital identification or the other implemented in different countries. The objective may be as simple as issuing a driving license or somewhat complex like, helping in the implementation of welfare schemes and preventing monetary leakages. We will go through a few such networks in our study:

1). E-Estonia: Dubbed as “the most advanced digital society in the world” by the Wired magazine in 2016^[2], Estonia has what is often termed as the most efficient, secure and transparent ecosystem when it comes to the unique identification system of their citizens. The E-Estonia service can not only be used to access all the public services in the country but also for voting in elections. Security is ensured by providing each digital card a unique cryptographic key pair that allows for unique digital signatures and the encryption of public documents.

2). RealMe: New Zealand has created a secure digital identity network which employs two-factor identification using a mobile phone and passport. On establishment of the identity account, it can be used to access public services schemes, opening a bank account or for any other purpose which requires one to prove their identity online. 

3). GOV.UK Verify: UK has an identification network for citizens to prove their identity online. Identity assurances are provided by ‘certified companies’ like Barclays, Experian, the Post Office UK among others which assist in verifying a user’s identity within 15 minutes^[3]. Like the other services discussed above, this verification allows access to 22 central government online services that cover benefits related to transport, employment, and finance among others.

4). Aadhaar: Aadhaar is the world’s largest biometric identification system operational since 2010 in India. Data related to each user is collected by the Unique Identification Authority of India (UIDAI). Aadhaar provides access to services spanning both public and private sectors such as mobile SIM cards, bank accounts, welfare schemes etc. It is treated as proof of residence as opposed to the proof of citizenship. We will discuss Aadhaar further in detail in our study.

Businesses are leveraging this emerging technology for interaction with their customers. With advancement in data encryption techniques and technologies like blockchain enabling decentralization of data, privately managed digital identification solution has become possible. For example, the Mastercard Digital Identity Service is a digital identification initiative that involves a collaboration of giants like Microsoft, Samsung, and some government partners. The system by design limits the usage of data such that the interaction utilizes as minimal data exchange as possible and that too only when needed. This efficient usage of data ensures that the digital identity of a user is bound securely through their smartphones. 

In this essay, we would take a detailed look at the Aadhaar based UID being used in India. We would look at its legal basis, the benefits derived from it, potential uses and also its drawbacks

The Case of Aadhaar in India

The Unique Identification Authority of India (UIDAI) was established through the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act in 2016 by the Indian Government. Its mandate was to issue Unique Identification Numbers (UID), called "Aadhaar", to all residents of India. Aadhaar has achieved moderate success in its objectives of eliminating fake and duplicate records and enabling online verification of identity. More than 124 crore Aadhaar numbers have been issued since its inception. (Unique Identification Authority of India | Government of India, 2020)^[4]

This digital initiative has had several benefits. It acts as a proof of identity for people living in remote areas and especially for people who have had little contact with Central government agencies traditionally, like tribal areas, hill dwellers and far-flung slums. 

The government operates many welfare schemes, some of which involve a transfer of funds to the beneficiaries, mostly from below poverty line households. Historically, this has been an inefficient mechanism full of leakages, either through corruption within the government or because of misuse by malicious actors. Inclusion of those who were not the intended beneficiaries and incorrect exclusion of the rightful stakeholders was common. By enabling direct benefit transfer to bank accounts using Aadhaar, which eliminates duplication or forgery, the government has saved more than 90,000 crore Rupees (till March 2018) (UIDAI Annual Report, 2018)^[5], enabling the government to quickly authenticate the user and check for propriety.

The digital payment initiative of the government called ‘Unified payment interface’ and various private payment services (like PayTM and GooglePay) have benefited from the easy authentication using Aadhaar. It is also being used by banks to enable e-KYC (electronic Know Your Customer) verification and for the opening of bank accounts

Potential uses in the future

Aadhaar could be connected with Voter IDs, which are the primary electoral document for 900 million Indian voters. This could check the notorious misdoings and get rid of ghost records. The Election Commission of India spends a lot of time and money on conducting elections through offline EVMs (Electronic Voting Machines), which are carried and brought back physically to the farthest corners of India during an election. In the future, online voting, like in the country of Estonia, is also a possibility. 

Linking of Aadhaar to social media accounts in order to inculcate responsive posting and to check trolling has been suggested. This comes at the backdrop of increasing instances of online abuse, spread of misinformation and hate groups taking ground. It has been matter of much public debate in India over the importance of stability and public order vs. freedom of speech. The government may take such steps in the future.

Potential concerns                                      

Privacy of individuals: The Puttaswamy case in the Supreme court of India on Aadhaar (Sikri, 2020)^[6] was one of the most highlighted cases against the Aadhaar. It reflects the scathing criticism by a large body of citizens concerned over the misuse of the unique identity by government or private bodies. As a result, the right to privacy was established as a Fundamental right India and the court debarred private firms from using Aadhaar and storing its data. Famously, the court remarked that the use of Aadhaar by private firms “will lead to commercial exploitation of the personal data of individuals without consent and could also lead to individual profiling. Profiling could be used to predict the emergence of future choices and preferences of individuals. These preferences could also be used to influence the decision making of the electorate in choosing candidates for electoral offices”. Parallels could be drawn with the Cambridge Analytica scandal involving profiling of US citizens enabled by Facebook in the 2016 US Elections.

Irresponsible use by government officials or system administrators: All digital identification systems are based on the premise that the administrator of the database (usually the government) shall be locked out of casual use, and access shall be allowed on a case by case basis, with a strict “need to know” basis compliance. Thereby it places a lot of trust on the actors within the government. However, historically we have seen that these systems tend to be exploited by individuals within the circle of trust for personal gains. 

Prone to hacking: The digital and universal nature of Aadhaar could increase financial fraud since it is also linked to bank accounts. Further, all sensitive personal information like phone number, Permanent Account Number (used for tax payments), ration card, etc. are all linked to the Aadhaar number. Once a hacker gets access to one of these, it may be easier for her to get access to other personal and identifying information.

Lastly, since most UIDAI services are primarily targeted for online use, illiterate people and areas not having network connections suffer a lot. Some villages which do not have last-mile access to electricity become dependent on agents to get authentication done. 

Conclusion                                                                      

The growth of digital ID, its increasing acceptance and adoption has delivered several positive results. Like every emerging technology, there are new risks which have emerged with the increasing use of digital ID. They need to be flagged and a thorough search for their solution needs to be prioritized. With the enormous potential ahead, especially when the next billion come online, we can expect a lot of disruption in this field.

Digital identification solutions have been quite effective in obstructing financial crime as well as fighting against them once they have happened. With further progress in technology and consequential advancement in the way data is acquired, compiled, stored, transmitted and traced the effectiveness of it will only go up from here in streamlining the regulatory fight against financial crimes. It won’t be inaccurate to say that the application of digital identities is still in infancy in financial crime detection, prevention and investigation. Most of what is implemented at the moment is digitalization of the existing process. Building and maintaining digital identity should just be a starting point for further adequate digital representation of the offline world and at the same time enough efforts should put to ensure the safety and secrecy of the data.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References

 

1). World Economic Forum Annual Meeting, Davos-Klosters, Switzerland, January 23–26, 2018; LexisNexis risk solutions 2018 True Cost of Fraud study, LexisNexis, August 2018, risk.lexisnexis.com.

 

2). Reynolds, M. (2020). Welcome to E-stonia, the world's most digitally advanced society. [online] Wired.co.uk. Available at: https://www.wired.co.uk/article/digital-estonia 

 

3). Jee, C. (2020). UK government identity scheme GOV.UK Verify launched today: What is GOV.UK Verify? GOV.UK Verify explained. [online] Computerworld. Available at: https://www.computerworld.com/article/3426967/uk-government-identity-scheme-gov-uk-verify-launched-today--what-is-gov-uk-verify--gov-uk-verify-exp.html

 

4). Unique Identification Authority of India | Government of India. (2020). About - Unique Identification Authority of India | Government of India. [online] Available at: https://uidai.gov.in/about-uidai/unique-identification-authority-of-india/about.html 

 

5). Annual Report, Unique Identification Authority of India, (2018). Available at: https://uidai.gov.in/images/Annual-Report-ENG-2017-18-Final-18072019.pdf 

 

6). Sikri, A. (2020). Justice K.S.Puttaswamy(Retd) vs Union Of India on 26 September, 2018. [online] Indiankanoon.org. Available at: https://indiankanoon.org/doc/127517806/