RBI Released a Framework for Small Value Offline Transactions in Digital Mode

India has witnessed remarkable progress in digital payments, thanks to the Unified Payment Interface (UPI)! Despite the pandemic, digital payments continued their growth even in the semi-urban and rural areas across the country and were not just restricted to the urban and metro cities. The most popular digital payment modes in India are POS devices and QR code's, which the banks, Non-Banking Financial Companies (NBFCs), and payment gateways have been pushing to physical store merchants to increase the penetration of the digital payment mode. However, both these methods depend upon internet connectivity, and transactions can fail due to poor network connectivity, which is why the RBI was looking for innovative solutions that do not require any internet or telecom connectivity.

"Lack of internet connectivity or low speed of internet, especially in remote areas, is a major impediment in the adoption of digital payments. Against this backdrop, providing an option of offline payments through cards, wallets, and mobile devices is expected to further the adoption of digital payments. The Reserve Bank has been encouraging entities to develop offline payment solutions. It is, therefore, proposed to allow a pilot scheme for small value payments in off-line mode with built-in features for safeguarding the interest of users, liability protection, etc.", said the central bank in its Statement for Developmental and Regulatory Policies on August 06, 2021, while issuing guidelines for payment system operators to launch pilot programs for small value payments through an offline mode.

The RBI has stated that pilot testing was undertaken for small value offline transactions in digital mode by some entities during the period from September 2020 to July 2021. A framework for small value digital payments in offline mode across the country is introduced upon encouraging feedback from the pilots.

Offline digital payment is a transaction that does not require internet or telecom connectivity. These transactions are either processed without a data connection or where the transaction is recorded offline and processed at a different point in time. Under the new framework released by the RBI, new or existing digital payment providers like GooglePay, PhonePe, Paytm, etc., may enable small value offline digital payments through pre-loaded cards, wallets, or mobile devices. However, offline digital payments can only be carried out face to face (proximity mode).

The upper limit for offline digital transactions is Rs 200 per transaction, subject to the total offline transaction limit of Rs 2,000 on a specific payment instrument. Customers basically use a wallet-like instrument that they can replenish/ recharge with a maximum limit of Rs 2,000. However, the balance replenishment can only occur in an online mode, said the central bank.

These transactions would not require an Additional Factor Authentication (AFA), such as One Time Password (OTP) or Personal Identification Number (PIN). An AFA is required to carry out regular digital transactions like paying through a POS device or OR scan. AFA is a two-step multi-factor authentication that increases the security of a digital transaction by using two different pieces of information.

As these transactions are performed offline, it will take time to record the transactions in the system. Hence, the customer may receive SMS and/ or email alerts after a time lag. However, the RBI advises the issuers to send the transaction alert as soon as the transaction details are received. Although there is no compulsion to send alerts for each transaction, the issuers are required to convey the details of each transaction adequately.

The authorised Payment System Participants (PSPs) and Payment System Operators (PSOs) - acquirers and issuers (banks and non-banks) - that wish to offer payments in the offline digital mode will have to comply with the requirements under the framework.

The banks and NBFCs can enable the offline payment mode only after obtaining explicit consent from the customer. These offline transactions are done using cards that are allowed without a customer's requirement to switch on the contactless transaction channel. Click here to read more about contactless card transactions.

The RBI provides protections to the customers under the provisions of circulars limiting customer liability issued by the RBI (as amended from time to time). Customers will have a resource to the Reserve Bank - Integrated Ombudsman Scheme for grievance redressal. All complaints with respect to banks, Non-Banking Financial Companies (NBFCs), and payment system operators can be made through the Complaint Management System (CMS).

The RBI said that the offline transaction framework is expected to boost digital transactions in rural and semi-urban areas that have poor or weak internet or telecom connectivity. This framework is a much needed push to offline digital transactions across the country.

How useful will the small value offline digital transaction framework be?

While there has been a considerable growth in digital payments in India, there is still scope for digital payment penetration in rural and semi-urban areas as well as urban areas where there is a lack of internet connectivity. One of the prerequisites of online digital payments is internet or telecom connectivity, which is yet to make its place in many regions of the country. Hence, the small value offline digital transactions can result in better financial inclusion, and it will be useful for those who do not have cash or facing weak internet connectivity.

However, a customer can only pay or receive up to Rs 200 in a single transaction. Moreover, the aggregate value of all the offline payments that can be done at a given time cannot exceed Rs 2,000. That said, once you exhaust your limit of Rs 2,000, you will need a mobile device and/or internet connectivity to replenish/ recharge the limit with an additional factor authentication so that you can again start transacting offline.

Warm Regards,
Ketki Jadhav
Content Writer

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