AEPS and Micro ATMs: The Importance and Changes in Identity-Based Banking for Rural Areas

Digital banking is rapidly expanding in India, especially in rural areas where traditional banking
facilities are limited. The Aadhaar Enabled Payment System (AEPS) and micro ATMs have
played a significant role in this transformation. These technologies have provided rural
populations with identity-based banking services, allowing them to access their bank accounts
and benefit from financial services easily.
Importance of AEPS and Micro ATMs-
1. Identity-Based Banking
The primary objective of AEPS is to make banking services identity-based in rural areas.
Through AEPS, people can use their Aadhaar number and biometric identification (fingerprint or
iris scan) to access banking services. This increases transparency and security in banking
services.
2. Accessibility of Banking Services
Rural areas often face a shortage of bank branches, requiring people to travel long distances to
access banking services. With micro ATMs and AEPS, rural residents can now perform banking
transactions at nearby shops or customer service centers.
3. Digital Inclusion
AEPS and micro ATMs have promoted digital inclusion. People can use digital payments, cash
withdrawals, money transfers, and balance inquiries. This also helps increase digital literacy.
Changes in AEPS Post-July 1, 2024
The Government of India and the Reserve Bank of India have implemented significant changes
to the AEPS model, effective from July 1, 2024.
1. Termination of the L0 Model
Previously, AEPS used the L0 model, which involved single-factor authentication. This model
has now been discontinued and replaced with the L1 model.
2. L1 Model and 2FA
The L1 model mandates two-factor authentication (2FA). Now, any banking transaction under
AEPS requires 2FA, enhancing security and reducing fraud.
3. Device Upgradation
According to the changes, merchants and retailers must upgrade their AEPS devices to the L1
model. This ensures compliance with new security standards and provides customers with a
secure banking experience.

Note: This service has been extended till 30th September, 2024.
Role of Micro ATMs-
Micro ATMs are small, portable ATMs that can be installed at merchants' and customer service
centers. These ATMs work in conjunction with AEPS and play a crucial role in making banking
services accessible in rural areas.
1. Financial Inclusion
Micro ATMs have extended banking services to rural areas. People can easily withdraw cash,
deposit money, and check balances at nearby shops.
2. Security and Convenience
With 2FA available in the L1 model, micro ATMs have enhanced the security of banking
services. This boosts customer confidence, encouraging the use of digital banking.
3. Time and Cost Savings
People in rural areas no longer need to travel long distances for banking services. Micro ATMs
enable them to perform banking transactions at nearby locations, saving both time and cost.
4. Beneficial for Merchants
Using micro ATMs, merchants can offer additional services to their customers, increasing their
income. Furthermore, the installation of micro ATMs can attract more customers.
According to Mr. Om Narayan Singh, Founder of Digital Gramin Seva and IMOC Digital
Services Private Limited, AEPS and micro ATMs have made banking services accessible,
secure, and convenient in rural areas. The changes implemented post-July 1, 2024, have
improved security and promoted digital inclusion. The L1 model and mandatory 2FA have
strengthened the security of banking services, increasing customer confidence. Installing micro
ATMs has made banking services more accessible in rural areas, benefiting merchants as well.
Through these technologies, digital banking is expanding in India, ensuring all citizens benefit
from financial services.