United Bank of India has blocked Aadhaar Enabled Payment System (AEPS) transactions for its users on micro ATMs installed by private banks since April for alleged round tripping by Business Correspondents of private lenders. Consequently, these private banks wrote to the National Payments Corporation of India (NPCI) in protest to the move taken by United Bank and the NCPI, in turn, has forwarded the letter to Reserve Bank of India seeking the regulator’s intervention, the report said. The development was reported by the Economic Times.

United Bank triggered the move as they had to pay ‘huge sums’ of money as interchange fees because business correspondents of private banks were round tripping funds through the micro ATMS and in turn, earning commission for each transaction, the ET report said quoting a senior public sector banker. Some banks have had to pay around Rs 1 crore in interchange fee in the quarter ending March (FY18), while they were earning close to a mere Rs 4000 from other banks for the same, the officials told ET.

The banker went on allege that in some cases about 20 accounts, credit and debit simultaneously in a single day, which suggested unusual customer behavior. the ET reported. He explained the modus operandi of these business correspondents – “These BCs do Rs 3000 credit and debit since that is the optimum amount that helps the interchange to reach Rs 15 per transaction and they get the maximum allowed commission,” the public sector banker told ET.

Round Tripping

Round tripping, in this context, can be referred to a series of transactions that debit and credit the same amounts of money in order to inflate volumes and generate interchange fee. While it is not necessarily illegal, regulatory authorities can take action against companies that practice these types of transactions. On an slightly related note, NPCI has recently decided to block similar transactions in the UPI ecosystem from August 1 in order to bring out the genuine number of transactions that take place.

Interchange fee is the service fee that one bank pays to another when the former’s customer does a transaction on a terminal of the latter bank. For every transaction, an interchange of 0.5% or Rs 15, whichever is lower, is paid to the bank whose micro ATM is used. A share of this interchange goes as commission to the retail partner or business correspondent in the field, ET explained.

Move causing trouble for customers: Private Banks

On the other hand, Private lenders have been critical of the move taken by United Bank and say it’s only causing trouble for customers. According to a an official from a Private Bank, AEPS transactions are mostly done in remote/rural areas and the ‘arbitrary’ step taken by Union Bank is causing trouble for customers withdrawing cash from their micro ATMs ET said. As such, most private banks were of the view that action should be taken against holds of accounts which reflect shady transactions rather than opting block AEPS transactions altogether. They go to point that penal action can be taken against such user under the money laundering guidelines.

The AEPS is a financial inclusion product developed by the NPCI which allows cash withdrawal, deposit and funds transfer at POS (Micro ATM) through a business correspondent of any bank using the Aadhaar authentication. It was designed, particularly for consumers in far flung areas undertake digital transactions.