Section 57 of the Aadhaar Act allowed private parties to authenticate the identity of customers using the Aadhaar authentication process.
The Supreme Court has held that the provision in Section 57 of the Aadhaar Act that enabled the use of Aadhaar Authentication by private parties was unconstitutional as such use allowed private parties to commercially exploit the biometric and demographic information. The court further held that any other use of Aadhaar Authentication must be backed by law and prohibited the use of Aadhaar Authentication under a contract. However, the Aadhaar card can be presented as proof of identity, if the card holder chooses to do so.
Consequent to the judgement, banks and telecom service providers who met their KYC obligations under law by using Aadhaar enabled e-KYC can no longer do so. It'll have far reaching impact on the burgeoning financial services industry - especially new-age fintechs, who will struggle to keep their transactional costs low and turnaround times fast without Aadhaar e-KYC.
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