The banking system in India has undergone a major transformation in the last decade, especially with the introduction of digital and Aadhaar-linked payment services. One such important development is the Aadhaar Enabled Payment System (AEPS). It allows people to carry out basic banking transactions using only their Aadhaar number and biometric authentication.
For bank exam aspirants, AEPS is a must-know topic. Questions from digital banking, financial inclusion, and payment systems are very common in exams like IBPS, SBI, RBI, LIC, NIACL, and other insurance or regulatory body exams. Therefore, understanding AEPS in detail will help you score better in both objective and descriptive papers.
What is Aadhaar Enabled Payment System (AEPS)?
Aadhaar Enabled Payment System (AEPS) is a payment service offered by the National Payments Corporation of India (NPCI) that allows customers to perform basic banking transactions through micro ATMs using their Aadhaar number and biometric authentication (fingerprint or iris scan).
This system does not require debit cards, credit cards, or even a smartphone. Instead, it uses the Aadhaar number as the key to access the customer’s bank account. The system is particularly useful for rural areas where access to physical bank branches and ATMs is limited.
Key Features of AEPS:
- Works on Aadhaar authentication.
- Customers can perform basic banking services.
- Uses Micro ATMs and Business Correspondents (BCs).
- Promotes financial inclusion.
- No need for a signature, debit card, or PIN.
Why is AEPS Important for Bank Exam Aspirants?
Banking exams test candidates on Financial and Banking Awareness, digital banking, and government initiatives. AEPS is a part of financial inclusion and digital India initiatives, which are a high-focus area in competitive exams.
- Exam relevance – AEPS is a frequently asked topic in GA and banking awareness sections.
- Government initiative – It is part of Jan Dhan Yojana, Direct Benefit Transfer (DBT), and financial inclusion.
- Practical knowledge – As a future banker, understanding AEPS is essential since officers will deal with rural banking, financial inclusion, and customer queries.
- Interview perspective – Questions about digital banking initiatives like AEPS are common in interviews and group discussions.
Components of AEPS
The AEPS system is built on multiple components that work together to make financial transactions possible using Aadhaar authentication.
1. Aadhaar Number
The Aadhaar number is a unique 12-digit identity number issued by UIDAI. This number is linked to a person’s bank account and used as the primary input for AEPS transactions.
- Every customer must link Aadhaar with their bank account to use AEPS.
- Aadhaar acts as the central identity proof.
2. Bank Account Linking
For AEPS to work, the customer’s Aadhaar must be seeded with the bank account.
- Customers can link Aadhaar to multiple accounts, but only the primary account is used for AEPS transactions.
- Seeding ensures Direct Benefit Transfers (DBTs) like subsidies, pensions, and government payments reach the correct account.
| Aspect | Importance |
| Account Verification | Ensures that the Aadhaar belongs to the correct customer |
| Fund Transfer | Directs subsidy or benefit transfer to the linked bank account |
| Multiple Account Issue | Only one default account is active for AEPS |
| Financial Inclusion | Brings unbanked people into the formal banking system |
3. Authentication Process
AEPS relies on biometric authentication instead of passwords or PINs. This method reduces fraud and ensures only the account holder can authorize transactions. The steps in AEPS Authentication are:
- The customer provides an Aadhaar number.
- The Bank Correspondent (BC) enters Aadhaar into the Micro ATM.
- Biometric authentication is done using fingerprint or iris scans.
- NPCI validates the Aadhaar with the UIDAI database.
- On a successful match, the transaction is approved.
4. Micro ATMs and Business Correspondents (BCs)
AEPS transactions are conducted mainly through micro ATMs operated by business correspondents (BCs).
- Micro ATMs are handheld devices used in rural areas for AEPS.
- Business correspondents are agents appointed by banks to provide banking services in villages and remote areas.
- These BCs help customers withdraw money, check balances, and perform transactions without visiting a branch.
Benefits of Micro ATMs and BCs:
- Reach in remote areas.
- Reduces cost of banking infrastructure.
- Provides employment to local agents.
- Strengthens rural financial inclusion.
5. Services Offered under AEPS
AEPS allows customers to perform limited but essential banking services.
| Service Type | Explanation |
| Cash Withdrawal | Customers can withdraw cash using Aadhaar authentication. |
| Cash Deposit | Money can be deposited into the linked account. |
| Balance Enquiry | Customers can check available balance instantly. |
| Fund Transfer | Aadhaar-to-Aadhaar fund transfers possible. |
| Mini Statement | Recent transactions can be viewed through Micro ATM. |
| Direct Benefit Transfer | Government subsidies and welfare payments credited via AEPS. |
Advantages of AEPS
AEPS has several benefits for customers, banks, and the economy. The details for the same is listed below.
Advantages for Customers:
- No need for cards, PINs, or signatures.
- Access to banking in rural and remote areas.
- Safe and secure due to biometric authentication.
- Helps in receiving government subsidies directly.
Advantages for Banks:
- Cost-effective compared to building branches or ATMs.
- Helps banks in meeting financial inclusion targets.
- Reduces the need for manual subsidy distribution.
Advantages for Government:
- Reduces leakage and corruption in welfare schemes.
- Ensures subsidies reach the right person.
- Promotes cashless transactions and transparency.
Limitations of AEPS
While AEPS is useful, it also has some limitations.
- Works only when Aadhaar is linked with a bank account.
- Biometric failure can occur due to poor fingerprint quality.
- Limited set of services compared to full banking.
- Dependence on availability of Business Correspondents.
- Connectivity issues in remote areas can delay transactions.
Practice Questions for Bank Exam Aspirants
Practice some questions for Bank Exams based on AEPS.
Multiple Choice Questions (MCQs)
- AEPS is operated by which organization?
a) RBI
b) NPCI
c) UIDAI
d) SBI
Answer: b) NPCI - Which of the following is NOT a service under AEPS?
a) Cash Withdrawal
b) Mini Statement
c) Loan Disbursement
d) Fund Transfer
Answer: c) Loan Disbursement - What is used for authentication in AEPS?
a) PIN
b) Password
c) Biometric (Fingerprint/Iris)
d) OTP
Answer: c) Biometric (Fingerprint/Iris) - AEPS is mainly used to promote which initiative?
a) Make in India
b) Digital India and Financial Inclusion
c) Skill India
d) Startup India
Answer: b) Digital India and Financial Inclusion - Who are Business Correspondents in AEPS?
a) Bank Managers
b) RBI Inspectors
c) Agents appointed by banks to provide banking services
d) IT staff in banks
Answer: c) Agents appointed by banks to provide banking services - Which of the following is mandatory to use AEPS?
a) Debit Card
b) Aadhaar Number linked with Bank Account
c) Smartphone
d) Cheque Book
Answer: b) Aadhaar Number linked with Bank Account - What is the role of UIDAI in AEPS?
a) Issues Aadhaar and authenticates biometrics
b) Manages fund transfer between banks
c) Provides Micro ATMs
d) Distributes subsidies
Answer: a) Issues Aadhaar and authenticates biometrics - Which of the following is a limitation of AEPS?
a) Biometric failure
b) Works in urban areas only
c) Requires debit card always
d) Cannot be linked with bank account
Answer: a) Biometric failure - Direct Benefit Transfer (DBT) through AEPS helps in:
a) Reducing subsidy leakages
b) Increasing foreign investments
c) Promoting exports
d) Generating government loans
Answer: a) Reducing subsidy leakages - What device is used to carry out AEPS transactions?
a) ATM Machine
b) POS Terminal
c) Micro ATM
d) Mobile Wallet
Answer: c) Micro ATM
FAQs
You can use AEPS without a debit card by giving your Aadhaar number and biometric (fingerprint/iris) at a Micro ATM or Business Correspondent (BC) point.
Yes, with AEPS you can withdraw cash directly from your bank account using your Aadhaar authentication at a Micro ATM.
Yes, Aadhaar must be linked (seeded) with your bank account to use AEPS services like withdrawal, deposit, and DBT.
Most banks set a daily AEPS limit of ₹10,000 per transaction (varies by bank). Some also fix a monthly limit for security reasons.
Yes, AEPS allows Aadhaar-to-Aadhaar fund transfer, which means you can send money from your account to another person’s Aadhaar-linked account.
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