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Business News/ Money / Personal Finance/  RBI MPC 2024: How Reserve Bank of India plans to secure digital payments using Aadhaar, and other key announcements
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RBI MPC 2024: How Reserve Bank of India plans to secure digital payments using Aadhaar, and other key announcements

The RBI proposes to introduce programmability and offline functionality in the CBDC pilot to enable additional use cases and transactions in areas with poor internet connectivity

RBI MPC 2024: The central bank proposed programmability and offline functionality in the CBDC pilot to enable additional use cases and transactions in areas with poor internet connectivity. (istock)Premium
RBI MPC 2024: The central bank proposed programmability and offline functionality in the CBDC pilot to enable additional use cases and transactions in areas with poor internet connectivity. (istock)

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) in its February review meeting unanimously decided to keep the policy repo rate unchanged at 6.5 per cent, thus maintaining the status quo for the sixth straight time.  RBI Governor Shaktikanta Das announced that the central bank will issue guidelines for a principle-based framework for authentication of digital payment transactions.

He also said that the central bank has prioritised the security of digital payments, in particular the need for an additional factor of authentication (AFA).

The RBI's latest announcements aim to future-proof India's digital payment ecosystems against emerging risks. “Introducing Aadhaar-based authentication for credit card and UPI transactions shall mitigate fraudulent activities by enabling traceability. However, data privacy aspects need examination. For wider access, enhancing transaction limits for Prepaid Payment Instruments should spur adoption. Allowing Bharat Bill Pay units in Tier 3-6 centers can also accelerate financial inclusion," said Ashish Aggarwal, Director, Acube Ventures.

Introduction of Programmability and Offline Functionality in Central Bank Digital Currency (CBDC) Pilot

Digital rupee users will soon be able to execute transactions in areas with limited internet connectivity as the RBI on Thursday announced that offline capability will be introduced on the Central Bank digital currency (CBDC) pilot project.

"It is proposed to introduce an offline functionality in CBDC-R (Retail) for enabling transactions in areas with poor or limited internet connectivity," Das said while announcing the bi-monthly monetary policy review.The CBDC Retail (CBDC-R) pilot currently enables Person to Person (P2P) and Person to Merchant (P2M) transactions using Digital Rupee wallets provided by pilot banks. “It is now proposed to enable additional use cases using programmability and offline functionality. Programmability will permit users like, for instance, government agencies to ensure that payments are made for defined benefits. Similarly, corporates will be able to program specified expenditures like business travel for their employees," RBI Governor Shaktikanta Das said.

Additional features like validity periods or geographical areas within which CDBC may be used can also be programmed. Second, it is proposed to introduce an offline functionality in CBDC-R for enabling transactions in areas with poor or limited internet connectivity. Multiple offline solutions (proximity and non-proximity based) across hilly areas, and rural and urban locations will be tested for this purpose. These functionalities will be gradually introduced through the pilots, he added.

RBI launched a pilot of the retail CBDC in December 2022 and achieved the target of having 10 lakh transactions a day in December 2023.

It can be noted that other payment platforms, especially the very popular Unified Payments Interface (UPI), already offer offline possibilities.

On Aadhaar Enabled Payment System (AePS)

Das also announced RBI's intent to enhance the security features of Aadhaar-payment Payment Systems (AePS)

“To enhance the security of Aadhaar Enabled Payment System (AePS), transactions, it is proposed to streamline the onboarding process, including mandatory due diligence, for AePS touchpoint operators, to be followed by banks," said the RBI Governor.

Additional fraud risk management requirements will also be considered. Instructions in this regard shall be issued shortly, he added.

"We believe that compliance transcends mere checkbox exercises; it serves as a critical tool in ensuring the safety of customer data and protecting the reputation of businesses," said Ankit Ratan, CEO & Co-founder at Signzy.

Principle-based Framework for Authentication of Digital Payment Transactions

“To facilitate the use of an Additional Factor of Authentication (AFA) for digital security, it is proposed to adopt a principle-based “Framework for authentication of digital payment transactions". Instructions in this regard will be issued separately," RBI Governor said.

While encouraging innovation, recommendations like augmented regulation for Big Tech and Buy Now Pay Later players reinforce commitment to stability. “Overall, the policy stance continues balancing innovation with security to expand access in a risk-calibrated manner. As India surges towards a $5 trillion economy in 2024-25, robust digital payments backing consumer growth remain vital. By instilling trust and expanding reach, the RBI steers progress to fulfill the 2025 vision," said Ashish Aggarwal.

“By adopting a principle-based framework for authentication, businesses not only curb the financial frauds but will also be able to provide a secure environment for its customers and protect their data," said said Ankit Ratan.

 

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ABOUT THE AUTHOR
Sangeeta Ojha
A business media enthusiast. Writes on personal finance, business and banking.
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Published: 08 Feb 2024, 11:29 AM IST
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