Offline digital payments: Analysis of RBI’s regulatory framework
This post analyses RBI’s framework for offline digital payments. It also traces the history of offline digital payments in India and highlights their benefits for users.
‘Offline digital payment’ sounds like an oxymoron. But with RBI’s framework for facilitating small value offline digital payments, it may become a mainstream payment option. Offline digital payments can be used without telecom or internet connectivity. So, if implemented effectively, the framework can aid digital and financial inclusion.
We spoke to Asheeta Regidi, Associate Director, Policy at Cashfree about the impact of this framework. “The new offline payments framework can incentivise last-mile penetration of digital payments,” she said, “particularly in rural and lower-tier areas where improper network/internet access has restricted adoption so far”. “Digital payments are often the first step towards financial inclusion which can drive merchants and customers away from cash-based transactions and towards the formal financial economy, thereby also opening the gates to other financial services like savings, credit, etc.,” she added.
Offline digital payments are not entirely new. In fact, UPI has been available offline since 2012. You can use it by simply dialling *99# on your phone, in any language (13 languages, to be precise). Offline digital payments were also part of the first cohort of RBI’s regulatory sandbox. The RBI then conducted a 7–8 month pilot program to test offline payments of up to Rs. 200. With a successful pilot and successful exits of the regulatory sandbox’s first cohort, the RBI felt encouraged to implement the framework.
The framework is an opportunity — to service first time digital payment users. Users can use form-factors like mobile devices, cards, or wallets to make offline digital payments. The regulatory sandbox’s first cohort participants have already demonstrated how technologies like Bluetooth, sound waves, NFC, or IVRS can be leveraged to develop creative solutions for such payments.
The framework tries to strike a balance between security and convenience. For instance, it imposes a transaction cap of Rs. 200 and a total cap of Rs. 2,000 (per instrument) to ensure security. And for convenience, it foregoes the additional factor of authentication (AFA) requirement.
But a larger question about adoption remains. While offline UPI was revolutionary, it does not have the numbers to show even after 8 years of its launch. There are multiple reasons behind *99# service not picking up. Like it’s not free (it costs Rs. 0.50 per session), works only on GSM network, and the user experience isn’t as clean as say usual UPI payments.
(This post has been authored by the fintech team at Ikigai Law.)