Towards payment inclusion


India is leading in financial inclusivity and is determined to take it further. For that, they are trying to offer offline payments.

The digital payment infrastructure of India is at its heights with UPI, QR codes and digital wallets, but it has its disparities, especially when it comes to adoption. Many parts of India face issues related to the internet connection.

Almost 44 crores people still use feature phones, making it difficult to access online payment services. This is a huge gap in a nation like India, that is why it is important to close it.

For that regulation and framework has to be laid.

For this purpose, RBI has released a circular with guidelines for establishing such an offline payments system.

This transaction system without the internet will also avoid the need for transactions to be processed via the internet. This avoids an immediate need for connectivity to switches and clearance mechanisms.

This leads to the recording of transactions offline, to be updated later by the bank. The service provider has to manage these offline records for a specific period. After that, transaction data can be passed to the clearing and settlement mechanisms.

The RBI issued transaction limits up to the amount of ₹200, with a total of ₹2,000 cumulatively, for the offline mode. The users can use it till limit, which will be updated later. Except for this process, the whole system works offline.

This lower limit will protect the user from being exposed to large risks or damages, for they are not protected by second-factor authentication. These transactions are limited to face-to-face/proximity mode.

As these transactions do not involve live authentication or balance verification, the issuer banks will have more control over the process. Prior consent is needed from the instrument-holders to enable offline mode.

The operational model is yet to be formed and is likely to mirror the operations of pre-approved credit or a prepaid card. In this a customer would pre-approve and set an amount to be kept aside for funding offline transactions from his account.

Until it is released for other transactions, the limit will remain blocked. The transactions amount will only be released after knocking off and settling the transactions.

It is yet to be seen if financial institutions and PSPs will bring offline payment features in feature phones.

RBI has been working on it for a year which could be reflected in the future guidelines addressing many visible and invisible challenges.

This system can be used in urban centres where the failure rate due to signal or internet outages are a serious issue. The elimination of authentication will lead to fast-track small-ticket payments. This can be boosted by NFC devices and contactless cards.

The sheer volume of small value payments and RBI policy attracts potential fintech to develop this field.

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