RBI plans to enhance robustness of AePS, secure framework for digital currency and digital payments

In the Statement of Development Regulatory Policy announced on Thursday, the Governor of RBI sets out various developmental and regulatory policy measures relating to Payment Systems and Fintech.

Aadhaar Enabled Payment System:

In 2023, more than 37 crore users undertook Aadhaar Enabled Payment System (AePS) transactions, which points to the important role played by AePS in financial inclusion. “To enhance the security of AePS transactions, it is proposed to streamline the onboarding process, including mandatory due diligence, for AePS touchpoint operators, to be followed by banks. Additional fraud risk management requirements will also be considered. Instructions in this regard shall be issued shortly”, the statement said.

Digital Payments:

As of now, RBI has not prescribed any particular Additional Factor of Authentication (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”. Instructions in this regard will be issued separately”, it said.

Off-line functionality of digital currency:

The Reserve Bank of India (RBI) is ramping up efforts to roll out its Central Bank Digital Currency (CBDC) by introducing new features to enhance its functionality.

As part of the CBDC pilot program, RBI is adding programmability and offline functionality to the digital currency. The CBDC Retail (CBDC-R) pilot currently allows for Person to Person (P2P) and Person to Merchant (P2M) transactions using Digital Rupee wallets provided by selected banks. RBI now proposes 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,” it said. 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, the statement said