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RBI Framework for Offline Digital Payments: Encouraging Digitization



Over the past few years, our reliance on digital payment methods has increased. Today, we rely more and more on payment methods such as mobile wallets, credit or debit cards, Unified Payments Interface (UPI), etc. However, a new set of problems and inconsistencies have emerged as part and parcel of this digitization. These methods require internet connectivity; low internet speed, frequent disturbances, or lack of connectivity, especially in the semi-urban and rural areas, have caused hurdles in their execution.


Consequently, a market need arose for a mode of payment that supported technological innovations that bypass such issues and the efficient adoption of digital payments.


Background


Considering this objective, the Reserve Bank of India (‘RBI’) launched a Pilot Scheme for Offline Retail Payments on 6th August 2020 (‘the Scheme’), for a limited period, which enabled payment system operators to offer offline digital payment services.


As the name suggests, an offline mode of payment does not require internet connectivity to take effect. The Scheme enabled payments to be made remotely or in proximity, without any additional authentication required, thus not requiring a One-Time Password (‘OTP’). Three pilots were successfully conducted under the Scheme in different parts of the country from September 2020 to June 2021, involving small-value transactions covering a volume of 2.41 lakh for a value of ₹1.16 crore.[1]


Framework for Offline Payments


Owing to the success of the Scheme[2] and based on encouraging feedback, the RBI made a welcome move and brought into effect the Framework for Facilitating Small Value Digital Payments in Offline Mode ('the Framework') on January 03, 2022.


The Frameworks allows making offline payments in a face-to-face mode, at any time, using a payment instrument, with an upper limit of INR 200 per transaction and an overall limit of INR 2000. Similar to the Scheme, the Framework allows making payments without requiring additional authentication. It is noteworthy that the offline mode of payment is enabled only with the explicit consent of the customer. In addition, the customer shall receive transaction alerts with a time lag. While alerts for each transaction are not compulsory, the details of such transactions must be adequately conveyed.


Protection of Customer Interests


The Framework provides for the protection of customer interests, by limiting customer liability in accordance with the circulars for:


  • Customer Protection- Limiting Liability of Customers in Unauthorized Electronic Banking Transactions dated July 06, 2017, and


  • Customer Protection-Limiting Liability of Customers of Co-operative Banks in Unauthorized Electronic Banking Transactions dated December 14, 2017 (‘the Circulars’).[3]


Under the Circulars, there are three ways of determining the liability of the customer:


  • When an unauthorized transaction takes place as a result of i) contributory fraud of the bank and ii) a third-party breach, without any deficiency of the bank or the customer, and where such a transaction has been reported by the customer promptly within 3 working days, the customer shall have zero liability.


  • When the loss occurs due to contributory negligence on the customer’s part, the customer’s liability shall stand at actuals until the unauthorized transaction is reported to the bank. Thereafter, the loss shall be borne by the bank.


  • When the loss occurs due to a third-party breach, without any deficiency of the bank or the customer, and where such a transaction has been reported by the customer within 4 - 7 working days of receiving communication of such a transaction, the customer’s liability shall be limited to the extent stated in the Circulars.


In addition, the customer shall also have recourse under the RBI Integrated Ombudsman Scheme, 2021.[4]


Conclusion


Thus, it is safe to say that the Framework is a positive step towards widening the reach of digitization to the remote, semi-urban, and rural areas, or areas of the country where internet connectivity is erratic or unpredictable. It may also encourage other entities to introduce innovative digital payments solutions without internet access.

[1] RBI, Statement on Developmental and Regulatory Policies, Oct. 08,2021, https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR1003059273A12A834499A97D2EE5DD0EF5F0.PDF. [2] Ibid. [3]Reserve Bank of India, Customer Protection – Limiting Liability of Customers in Unauthorized Electronic Banking Transactions, DBR.No.Leg.BC.78/09.07.005/2017-18 (Issued on July 06, 2017); Reserve Bank of India, Customer Protection - Limiting Liability of Customers of Co-operative Banks in Unauthorized Electronic Banking Transactions, DCBR.BPD.(PCB/RCB).Cir.No.06/12.05.001/2017-18 (Issued on December 14, 2017). [4] The Reserve Bank - Integrated Ombudsman Scheme, 2021. https://rbidocs.rbi.org.in/rdocs/content/pdfs/RBIOS2021_121121.pdf.
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