Financial sector stakeholders keep a close watch on the release of statements from the Reserve Bank of India (RBI) on developmental and regulatory policies. These statements provide guidance on the RBI’s thought processes and the direction that the RBI intends to take on rule-making. The August 2020 statement announced a scheme to test technology that brings digital payments to locations where internet connectivity is low or unavailable. Following these tests, in its October 2021 statement, the RBI announced its intention to introduce a framework for offline retail digital payments. On 3 January 2022, the RBI introduced a framework to carry out small value offline digital payments.
An offline digital payments mechanism was one of three regulatory developments introduced by the RBI for payments systems in the October 2021 statement. The others were the raising of the transaction limit for the Immediate Payment Service of the National Payments Corporation of India to INR500,000 (USD 6,750) and the geotagging of payment system touchpoints. This last means capturing the geographical coordinates of physical payment acceptance infrastructure such as point-of-sale (PoS) terminals and quick response (QR) codes.
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The framework defines an offline payment as a transaction that does not require internet or telecom connectivity for completion. 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 in close proximity to each other. The framework will enable flexibility in that offline payments may be made using any channel or instrument, including cards, wallets, and mobile devices, all of which may be used with or without additional authentication.
Customers must provide explicit consent to allow payment instruments to perform offline transactions. The limit of an individual offline transaction is INR200, and the total limit of all offline transactions on any payment instrument is INR2,000. Once the limit is reached, a payment instrument can be topped-up for offline transactions only in online mode and with additional authentication. The issuer of a payment instrument must provide adequate details of all transactions to the user of the payment instrument.
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Offline payments are covered by the customer liability protections prescribed by the RBI for electronic payment transactions. These are that a customer has no liability where an unauthorised transaction occurs due to fraud, negligence or any deficiency in the service of a payment instrument provider, or where a customer informs the provider of the payment instrument within three working days of receiving a communication of an unauthorised transaction which is due to a third-party breach and where the fault lies neither with the customer nor with the payment instrument provider. A customer will be liable for losses due to unauthorised transactions resulting from their negligence until the customer reports the unauthorised transactions to the payment instrument provider. Losses occurring after such reporting are borne by the payment instrument provider.
Enabling digital offline transactions appears to be a minor development, particularly considering the value involved, the low-tech nature of the technology solution, and the lack of excitement compared to other payments and fintech innovations. However, because a vast majority of the population lacks access to financial services due to a lack of infrastructure and geographical remoteness, this regulatory development will likely be at the vanguard of improving financial inclusion in remote areas with poor electricity supply and telecommunications infrastructure. In the process, it will promote financial literacy. To make this regulatory development more effective, the RBI could have incorporated provisions in the framework enabling payments of small enterprise and microfinance loans and insurance premiums, and the receipt of disbursements from government subsidy schemes to be dealt with through the digital offline system. Such a provision would demonstrate significant regulatory foresight and would have a far-reaching positive impact.
Sawant Singh and Aditya Bhargava are partners at Phoenix Legal. Sristi Yadav is a senior associate.
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