In a landmark move to strengthen payment security, the Reserve Bank of India (RBI) has issued new authentication directions making two-factor authentication (2FA) mandatory for all digital payments in India from April 1, 2026.
This change aims to curb fraud, boost user confidence, and modernize authentication methods beyond just SMS OTPs.
Key Highlights of the New 2FA Guidelines
| Feature | What It Specifies |
|---|---|
| Effective Date | April 1, 2026 |
| Mandatory 2FA for All Payments | All digital payment transactions must be authenticated using at least two factors |
| Types of Authentication Factors | Password, PIN, passphrase, card, hardware/software token, biometrics, device-native features, etc. |
| Dynamic / Unique Factor Requirement | At least one factor must be dynamically generated or uniquely tied to the transaction (cannot be reused) |
| Risk-Based Checks | Banks and issuers may apply additional checks depending on transaction risk profile |
| Cross-Border / Card-Not-Present | Non-recurring cross-border card-not-present transactions may require additional validation |
| Exemptions / Limited Cases | Some low-value, recurring, or contactless payments may be exempted or treated differently |
| Liability / Refunds | If fraud occurs due to non-compliance by the issuer/service provider, they may be liable to refund users fully |
What’s New vs Current System
Today, many digital payments rely mainly on SMS-based OTPs. The new rules broaden acceptable methods and push for stronger, adaptive authentication.
The “dynamic / unique factor” requirement means a repeated static password alone will not suffice.
Institutions can apply extra security layers for higher-risk transactions using risk-based checks.
Cross-border and card-not-present payments will need enhanced factor authentication when triggered.
Exemptions & Special Cases
Not all transactions will require full 2FA in every scenario. The RBI allows limited exemptions in cases such as:
Small-value contactless card transactions
Recurring payments after initial authentication
Certain prepaid instruments (gift cards or small-value instruments)
NETC / toll payments
Offline or small-value digital payments done in controlled settings
Impact & Preparation: What Users & Firms Need to Do
For Payment Firms, Banks, Issuers, PSPs
Upgrade infrastructure to support multiple authentication methods (biometrics, tokens, device-based features)
Incorporate risk-scoring models to adapt security levels
Ensure interoperability across apps/platforms
Audit existing payment flows for compliance with the new standard
Train staff and prepare customer support for the transition
For Users / Consumers
Be ready to use more than just SMS OTPs — your phone’s biometrics, app-based tokens, or PINs may be involved
Keep your device secure (OS updates, app permissions, not sharing credentials)
Be alert to fraud attempts — phishing, fake authentication prompts
Know your rights: if a provider fails to comply and fraud occurs, there may be refund liability on their side
Risks, Challenges & Criticisms
User inconvenience / friction: More authentication steps may slow small or quick payments
Adoption lag: Smaller merchants or rural areas may struggle to comply by April 2026
Security of new methods: Biometrics, tokens, and device features must be well implemented
Balancing convenience vs security: Too strict rules may dampen ease-of-use; too lenient may allow vulnerabilities
Liability ambiguity: Responsibility between issuer, merchant, and user must be clearly defined
FAQs
Q1: What qualifies as “two factors” under the new rule?
A1: Two distinct categories — something you know (password, PIN, passphrase), something you have (token, device), or something you are (biometric). At least one factor must be dynamically generated for each transaction.
Q2: Will SMS OTPs still be allowed?
A2: Yes. SMS OTP can continue as one authentication factor, but stronger or additional factors are encouraged.
Q3: What happens if a user loses access to their biometric or token device?
A3: Payment providers must ensure fallback or recovery methods. Users should follow their provider’s procedure for re-authentication or re-registration.
Q4: Can small transactions be exempted?
A4: Yes, small-value contactless payments, certain recurring payments, and some prepaid instruments may have lighter authentication norms under exemptions allowed in the guidelines.
Q5: What if there’s fraud due to non-compliance by a bank or payment service?
A5: The issuer or service provider may be liable to fully refund the user if fraud occurs as a result of not meeting the 2FA rules.
Conclusion
The RBI’s mandate to make two-factor authentication compulsory for all digital payments from April 2026 marks a major step toward securing India’s digital financial landscape. While there will be challenges in implementation, the move is expected to significantly reduce fraud and bolster trust in online transactions.
Both payment providers and users have time to prepare — upgrading systems, educating users, and ensuring smooth transitions. The success of this initiative will depend on striking the right balance between security and convenience in a rapidly digitizing economy.
Published on : 26th September
Published by : SMITA
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