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Reserve Bank of India Introduces Framework for Offline Digital Payments

The country’s central bank, the Reserve Bank of India recently issued a statement regarding its new Framework for Facilitating Small Value Digital Payments in Offline Mode, which allows offline digital payments up to IN₹ 200 (US$2.65) per transaction, subject to an overall limit of IN₹ 2,000 (US$26.9). The move is an attempt to boost digital payment penetration in rural and semi-urban areas. An offline digital payment means a transaction that does not require internet or telecom connectivity.

Under the offline mode, payments can be carried out face-to-face (proximity mode) using any channel or instrument like cards, wallets, and mobile devices. These transactions will not require an additional factor of authentication (AFA). Since the transactions are offline, the customer will receive alerts through SMS and/or e-mail. The issuer shall send the transaction alerts to users when the transaction details are received.

There is no compulsion to send an alert for each transaction; however, the details of each transaction shall be adequately conveyed. RBI explained that transactions are subject to an overall limit of IN₹2,000 (US$26.9) for all transactions until the balance in the account is replenished. Balance replenishment can only occur in an online mode. The framework incorporates the feedback received from the pilot experiments on offline transactions conducted in different parts of the country from September 2020 to June 2021, it said.

Offline transactions are expected to give a push to digital transactions in areas with poor or weak Internet or telecom connectivity, particularly in semi-urban and rural areas. The new framework is applicable with immediate effect. The offline mode of payment can be enabled after obtaining customer consent. RBI noted that the customers will continue to enjoy protection under the provisions of circulars limiting customer liability and will have recourse to the Reserve Bank Integrated Ombudsman Scheme for grievance redress.

Also, such transactions using cards should be allowed without a requirement to switch on the contactless transaction channel. Further, the acquirer should incur all liabilities arising out of technical or transaction security issues at the merchant’s end. RBI has asked all the authorised payment system operators (PSOs) and payment system participants (PSPs) – acquirers and issuers (banks and non-banks) – to ensure compliance with the instructions.

OpenGov Asia reported earlier in December that RBI plans to launch Unified Payment Interface (UPI)-based digital payment solutions for feature phones, eliminating the need for an Internet connection. RBI will also launch an ‘on-device’ wallet in UPI applications, which will simplify the process for small-value transactions. UPI was developed under the Digital India initiative and is run by the RBI. The UPI is a system that powers several bank accounts into a single mobile application (of any participating bank), merging several banking features.

Until now, only smartphone users have been able to use UPI services for payments. India has around 1.2 billion mobile users, and of which only 740 million have smartphones. The UPI service for feature phones, which lack the advanced functionalities of smartphones, is expected to benefit a large number of consumers. Low-value transactions utilise significant system capacity and resources, leading to customer inconvenience because of transaction failures as a result of connectivity issues. The ‘on-device’ wallet will conserve banks’ system resources without any change in the transaction experience.

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