Framework for offline payment
All financial sector stakeholders keep a close watch on the Reserve Bank of India's (RBI's) periodic statements on developmental and regulatory policies. These statements provide guidance on the RBI's thought process, and the direction that the RBI intends to take on rule-making. The RBI's August 2020 statement announced a scheme to test technology to enable digital payments in locations where internet connectivity is low or not available. Based on these tests, in its October 2021 statement, the RBI announced its intention to introduce a framework to enable offline retail digital payments. On 3 January 2022, the RBI introduced a framework to carry out small value digital payments in "offline mode".
The enabling of digital offline payments is among three regulatory developments introduced by the RBI on payments systems in India in its October 2021 statement – the others being the enhancement of the transaction limit for immediate payment service of the National Payments Corporation of India to 500,000 Indian rupees (approximately $6,749), and the geo-tagging of payment system touch points (ie, capturing geographical coordinates of physical payment acceptance infrastructure, such as point-of-sale terminals and quick response codes).
The framework defines "offline payment" as a transaction that does not require internet or telecoms connectivity to be concluded. Offline payment solutions can be offered by authorised payment system operators and banks and non-banks classified as "payment system participants – acquirers and issuers". Offline payments can only be made when the parties are face to face or proximate to each other. The framework contemplates flexibility in that offline payments can be made using any channel or instrument, which includes cards, wallets and mobile devices, and can be made with or without additional factor authentication.
Customers have to provide their explicit consent to enable payment instruments for offline transactions. The limit of an individual offline transaction is 200 Indian rupees, and the aggregate limit of all offline transactions on any payment instrument is 2,000 Indian rupees. Once the limit is exhausted, a payment instrument can be replenished for offline transactions only in "online mode" and with additional factor authentication. An issuer of a payment instrument must provide adequate details of all transactions to the user of the payment instrument.
Offline payments are covered by the customer liability protections prescribed by the RBI for electronic payment transactions. The RBI's directions prescribe that a customer has no liability where:
- an unauthorised transaction occurs due to fraud, negligence or deficiency in the service of a payment instrument provider; or
- a customer informs the provider of the payment instrument within three working days of receiving communication of an unauthorised transaction that is due to a third-party breach and where the deficiency does not lie with either the customer or the payment instrument provider.
A customer would be liable for losses from unauthorised transactions that occur due to the customer's negligence until the customer reports the unauthorised transactions to the payment instrument provider. Losses occurring after the customer makes such a report are to be borne by the payment instrument provider.
The enabling of digital offline transactions appears to be an innocuous development, particularly considering the value involved, the low-tech nature of the technology solution and its staid prospects, compared with other payments and fintech innovations. However, because a vast majority of the Indian population still lacks access to financial services due to lack of infrastructure and geographical remoteness, this regulatory development is likely to be at the vanguard of improving financial inclusion in remote areas with poor electricity and telecoms infrastructure, and of promoting financial literacy.
To make this regulatory development more meaningful, the RBI could have considered incorporating provisions in the framework enabling offline payments in respect of small enterprise loans, micro-finance loans, insurance premiums and receipt of disbursements from government subsidy schemes. Such moves would have been the hallmark of significant regulatory foresight and would also have had a far-reaching positive impact.
For further information on this topic please contact Aditya Bhargava or Sristi Yadav at Phoenix Legal by telephone (+91 22 4340 8500) or email ([email protected] or [email protected]). The Phoenix Legal website can be accessed at www.phoenixlegal.in