Recognizing the growth of contactless payment technologies such as Near Field Communication (NFC), the RBI has floated a draft that suggests relaxing the clause for mandatory 2-factor authentication for low-value card transactions.
If accepted, the relaxation will be permitted for transactions of value less than Rs 2,000, but banks are free to set lower transaction limits. Further, the RBI mandates that all contactless cards must adhere to EMV standards.
The RBI observes that the chips in contactless cards do meet security standards, making transactions more convenient as users will not have to enter their 4-digit PIN for every transaction.
The relaxation in use of 2-factor authentication however will not be permitted for Card not Present transactions (CNP).
The Paytm Factor
Some say Paytm, a mobile wallet company, which has soared in popularity due to its ease of use has dodged a bullet as the RBI doesn’t plan to turn off 2-factor authentication for card-less transactions just yet.
With the RBI mulling removing 2-factor authentication for other low-value transactions, the USP of Paytm could be lost.
The company however doesn’t see this as a threat, as it believes single-factor authentication to make payments isn’t the only feature for which users have flocked to its platform. Further, loading cash into users wallets will get easier if the RBI relaxes its stand on 2-factor authentication.
Paytm also has its own e-commerce platform, from which it takes a 2.5% cut from merchants for each transaction.
According to the company, the government will continue to make it easier for customers to transact funds in order to de-incentivise cash payments. Currently consumers are shopping online, but paying offline, opting for the cash-on-delivery option for 80-90% of their transactions.
Paytm is betting against this, hoping that consumers will get cosy to the idea of paying for things through their virtual wallets. Chinese e-commerce giant Alibaba, which chose Paytm for its first investment in India, as well as investors like Ratan Tata, too believe that the virtual wallet is the payment solution of the future.