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With NPCI testing UPI Lite, Offline Digital Payments Might Soon Become Reality

The initial steps to enable offline digital payments in India are being taken by India

The National Payments Corporation of India (NPCI) is testing UPI-based payment solutions which don’t require an active internet connection, Mint has reported. The solution is called UPI Lite, and might be used to enable transactions under Rs. 200 in rural areas, the report claims.

Earlier this month, the RBI released a framework for offline digital payments. These developments suggest that key stakeholders have taken the initial steps to setup offline digital payments in India, and it is only a matter of time before they become reality.

How will UPI payments without internet work?

According to Mint, two key solutions are being tested for UPI-based payments that don’t require an active internet connection. Both solutions use the SMS network to enable digital payments:

  • SIM overlay: A solution being tested is that of expanding the functionality of the SIM card with an overlay. “The user will have to get it deployed (on their phone) by visiting a store,” a government official told Mint.
  • Software Update: The second solution being tested is that of an over-the-air software update that doesn’t require an internet connection. This would enable UPI-based payments by utilizing the SMS network.

MediaNama has reached out to NPCI for further details about UPI Lite, and will update the story once a response is received.

RBI releases framework for offline digital payments

On January 3, 2021, the RBI released a comprehensive framework setting out rules and regulations around offline digital payments. Here are key points outlined in the framework:

  • Face to face mode only: Offline payments shall be made in proximity (face to face) mode only, the framework mandates. This implies that offline payment methods will need to devise a mechanism to ensure that the transfer is happening between two people in physical proximity.
  • Transaction limit of Rs. 200: The central bank has capped the ceiling of a single transaction at Rs. 200 whereas the total limit for offline transactions on a payment instrument will be Rs. 2,000 at any point in time.
  • Consent mandatory: Offline payment methods can only be enabled for customers after their consent for doing so is obtained, the RBI has stipulated in its framework.
  • No alert necessary for every transaction: The RBI added that there is no compulsion to send an alert for each transaction;  details of each transaction, however, must be adequately conveyed to the customer.

Read: RBI Releases Framework For Offline Digital Payments, Capping Each Transaction At Rs 200

With ease in digital payments, an increased risk of payment frauds

Digital payment frauds often go hand in hand with a growth in digital payments. In response to a question regarding digital payment frauds in the Lok Sabha, the Ministry of Finance recently released state and state-wise fraud data obtained by the RBI:

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  • Consistent increase in card-based payment fraud: Almost all states have seen an exponential increase in frauds on card-based payments and internet banking between 2016 and 2020, the data suggests. Only 393 cases of fraud were reported in Haryana in 2016, for example, but that number went up to 5,605 in 2020. Number of frauds in Tamil Nadu increased from 540 in 2016 to 7,416 in 2019.
  • Highest fraud rates in Maharashtra: In terms of both the number of frauds and the amount involved in such frauds, Maharashtra exceeds all other states by a significant margin. The country has seen 26,522 cases of fraud in the last financial year, involving a total amount of 67 crores. The next highest number was in Delhi, with a total of 7,774 reported cases. Other states with high numbers of reported fraud include Gujarat, Haryana, Karnataka, and Tamil Nadu.

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