RBI seeks to replace SMS OTP with newer authentication methods

The Reserve Bank of India (RBI) has unveiled a draft framework introducing alternative authentication mechanisms to complement the existing SMS-based One-Time Password (OTP) system for digital payment transactions.

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This initiative reflects the evolving technological landscape and aims to enhance the security and flexibility of digital payments.

Historically, no specific authentication factor was mandated for digital payments, but the ecosystem has predominantly relied on SMS-based OTP as the Additional Factor of Authentication (AFA). While SMS-based OTP has proven effective, advancements in technology have opened up new avenues for authentication.

The draft framework emphasizes the importance of using more than one factor to authenticate payment instructions, ensuring that the process effectively validates and confirms the credentials of the customer initiating the payment. Importantly, the framework stipulates that issuers must secure explicit consent from customers before enabling any new authentication factor. Customers should also retain the option to deregister from using these new methods.