RBI to Relax Two-Step Authentication Rule for NFC Enabled Small Card Transactions

In the last year, much was made of the 2 step authentication process mandated by the RBI for all card transactions. Uber, the mobile marketplace for cabs, was in the eye of the storm with its one touch credit card payment mechanism which did not involve the additional step of authentication. Eventually after rounds of discussion and an extension period granted by the RBI, Uber tied up with Paytm, moving from credit card transactions to mobile wallets in India. Famously, Uber called this requirement “an antiquated solution that is cumbersome for consumers and stifling for businesses across India.”


In the meantime, we had seen the introduction of the NFC technology which was gradually being adopted by different players, most notably ICICI. NFC or Near Field Communication technology enables short wave high frequency radio communication between devices making it simpler to make transactions, exchange content and connect devices when they are in proximity or with a touch. A lingering issue remained as to how the transaction would be made any simpler and speedier with the additional pin authentication step mandated by RBI. In November, 2014, RBI had indicated relaxing the norms for small transactions, and true to its promise, it has come out with a draft circular inviting comments, allowing transactions up to INR 2000/- without the additional authentication steps.

The circular makes a specific reference to NFC and, if notified, shall only apply to card transactions which use this technology. Further, this relaxation would apply to credit present transactions only (CP) and not to card not present transactions (CNP). Taking into account the risks that accompany this ease of use, the banks would be advised to clearly explain usage and liabilities to the customer and put into place mechanisms for seamless reporting of loss of cards through different channels. While this relaxation may not make a difference to the payment processes employed by companies like Uber, it is definitely a step in providing more flexibility and ease to card transactions.

The draft circular can be accessed here.