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Business News/ Money / Personal Finance/  RBI plans to do away with OTP based authentication. What we know so far
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RBI plans to do away with OTP based authentication. What we know so far

RBI has not expressed any desire to phase out authentication process completely but only the process of AFA (additional factor of authentication)

The banking regulator will issue detailed guidelines in this regard soon Premium
The banking regulator will issue detailed guidelines in this regard soon

The Reserve Bank of India (RBI) is set to do away with the OTP (one time password) based authentication. As of now, the banking regulator has not issued any detailed guidelines.

The plan has been shared in a Statement on Development and Regulatory Policies released on Feb 8 on the RBI's website. The RBI proposed to adopt a principle-based "Framework for authentication of digital payment transactions".

The instructions in this regard will be issued separately, the RBI's statement reads.

As of now, whenever we carry out a financial transaction digitally, the fintech firm or bank invariably send an OTP as an additional factor of authentication on the mobile number linked to the account. And only after entering the same OTP, the transaction is allowed to complete. This AFA is a key step to ensure safety of bank accounts and prevent misuse of financial data obtained illegitimately.

In fact, RBI has not expressed any desire to phase out authentication process completely but only the process of AFA (additional factor of authentication).

“Though RBI has not prescribed any particular AFA, the payments ecosystem has largely adopted SMS-based one-time password (OTP). With innovations in technology, alternative authentication mechanisms have emerged in recent years. To facilitate the use of such mechanisms for digital security, it is proposed to adopt a principle-based "Framework for authentication of digital payment transactions," reads the statement.

Ravi Battula, Head of Payment Security, Wibmo, says, "The RBI's progressive Principle-Based Authentication Framework is reshaping digital transactions. This initiative standardises authentication, enhancing security and reliability. With streamlined processes and clear guidelines, trust among users and businesses grows, fostering wider acceptance and growth in digital payments."

Aadhaar enabled payment system (AePS)

In the same document, the RBI has proposed to streamline the onboarding process of Aadhaar enabled payment system (AePS) for AePS touchpoint operators to be followed by banks. Additional fraud risk management requirements will also be considered.

ALSO READ: How Reserve Bank of India plans to secure digital payments using Aadhaar, and other key announcements

In 2023, over 37 crore users undertook AePS transactions, which points to be important role played by AePS in financial inclusion.

The RBI also allowed branch/ subsidiary/ joint venture of Indian bank in GIFT-IFSC to act as a trading member of India International Bullion Exchange IFSC Ltd (IIBX).

Indian banks are, therefore, authorised to import gold or silver to act as Special Category Client of IIBX.

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Published: 11 Feb 2024, 10:46 AM IST
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