09/12/2016 2:33 PM IST | Updated 09/12/2016 3:56 PM IST

What RBI's Two-Factor Authentication Acually Means For E-Wallets

RBI has relaxed the need for two-factor authentication for the transactions up to ₹2000

Anatoly Vartanov
One-Time Password (OTP) Token

On 6 December RBI issued a notice regarding the two-factor authentication for payment networks. It said that any transactions below ₹2000 would not require any OTP (One Time Password).

Earlier, it was required for all the payment network to send an OTP or use a 3D PIN as the second part of the authentication during any payment. The customer would receive an SMS of a generated PIN which they had to enter on the portal.

However, the payments through the online wallets didn't need an OTP if there was enough balance in the account. In 2015, Uber had to introduce two-factor authentication for credit cards after a warning from authorities.

After the demonetisation announcement from Prime Minister Narendra Modi on 8 November, the online wallets have been in celebratory mode. They have been constantly showing off their growth numbers on social media platforms. Most of them are in the process of increasing the offline point of sales service for the vendors such as the vegetable sellers.

The main two incentives for using the wallet for people were easy peer-to-peer transfer of money and convenience of the payment which eliminated the OTP. But after the recent announcement, a lot of services such as Uber, Ola, Zomato and Swiggy would be happy as there would be no need for sending OTPs while making payments. And most of the transactions on above mentioned platforms are under ₹2000.

Shailesh Andrade / Reuters
Bhavish Aggarwal, CEO and co-founder of Olamarket. The company aims to capitalise on India's low level car ownership, with urbanites deterred by both the expense and the lack of parking space, its 29-year-old Chief Executive Aggarwal told Reuters on Tuesday. To match INDIA-OLA/ REUTERS/Shailesh Andrade (INDIA - Tags: TRANSPORT BUSINESS)

"We welcome the timely move from the Reserve Bank of India to do away with two factor authentication for low value, card-not-present transactions. This will definitely encourage more users to switch to debit and credit cards for online payments. Amidst the ongoing demonetization exercise, we have extended Ola Money, our captive payment solution to a variety of use cases across 25 major utilities, 20,000+ fuel stations and over 500 merchants online and offline, " Ola cabs said in a statement.

While the service providers would be joyous, there would be a little worry in the camp of payment wallets which contains the bigwigs such as Paytm, Mobikwik, Freecharge and more. A lot of people wouldn't take the effort to put the money repeatedly into the wallets as small payments would be now hassle free. As of now the wallets are taking a very neutral stand on this.

"We welcome the RBI notification made yesterday, making it easier for interested users to use their credit / debit cards for online transactions below Rs 2000 without needing to add the second authentication (through OTP or additional password). This will greatly improve the success rate of online transactions, which will grow both online commerce and cashless payments in India. Additionally, we will await further details," Govind Rajan, CEO, Freecharge said.

While the new announcement is welcomed by the people in general the government is also keen on removing the service tax from the transactions which are below ₹2000.

"In India, number of bank card holders and users differ significantly and this step will help close this gap. This will further boost online payments and card acceptance infrastructure. In the past few weeks, we have seen a surge in usage of many digital payment platforms, be it wallets, cards or netbanking. Zaakpay, our payment gateway has observed a substantial jump in card payments too," Mrinal Sinha, Chief Operating Officer, MobiKwik said.

In terms of peer to peer transfers most of the major banks are jumping on to the UPI (Unified Payment Interface) platform and making apps cater that. Right now, the UPI exists for every bank individually but the developement for a singluar platform has already started. This means that it will be very easy to transfer money to each other without having to wait for adding a beneficiary to the account. This method will give a tough competition to wallets for the transfers.

The wallets would need to offer more incentive and maybe cashbacks to lure the users into the payment wallet system.

HuffPost India has reached out to Paytm for a comment on the RBI's decision.