UPI Lite Testing Begins: Here's How Govt Plans to Take Digital Payments Offline

Here's all you need to know about how, and why, the government is planning to take digital payments offline.

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UPI Lite Testing Begins: Here's How Govt Plans to Take Digital Payments Offline
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Weeks after the Reserve Bank of India (RBI) issued a framework to allow offline digital payments, reports suggest that the National Payments Corporation of India (NPCI) is testing a system to facilitate such transactions.

Called UPI Lite, the solution will allow payments based on the Unified Payments Interface (used by apps like BHIM and Google Pay) to happen without an active internet connection, sources told Mint.

Here's all you need to know about how, and why, the RBI is taking digital payments offline:


How Will the New System Work?

Earlier this month, the Reserve Bank of India issued a framework which allowed offline digital payments – that won't require internet or telecom connectivity – with certain conditions attached.

You will be limited to Rs 200 per transaction with an overall limit of Rs 2000 for offline transactions, after which you will have to replenish your balance by going online once more.

Under this new framework, users will be able to make offline payments face-to-face using various channels like cards, digital wallets and mobile devices, the RBI said in a press release. This mode of payment will be enabled only after obtaining specific consent from the customer.

The Reserve Bank has been conducting pilot experiments on offline transactions in different parts of the country since September 2020.


What are the Security Measures in Place?

The RBI, in its release, said that customers will be provided with protection under the provisions of circulars limiting customer liability, which will be amended from time to time.

"Customers also have recourse to the Reserve Bank Integrated Ombudsman Scheme for grievance redressal," it added.

The RBI also said that the acquirer (the bank representing the merchant) "shall incur all liabilities arising out of technical or transaction security issues at merchant’s end."

These transactions won't require an Additional Factor of Authentication (AFA) like one time passwords (OTPs). However, since the transactions are offline, customers will receive SMS and email alerts after a time lag.


Who Will This Help?

The RBI expects offline transactions to give a push to digital transactions in areas with poor or weak internet or telecom connectivity, particularly in semi-urban and rural areas.

This framework could bring remote areas with poor connectivity closer to financial inclusion and digital banking, potentially giving them an economic boost.

According to World Bank data, about 59 percent of the Indian population doesn't have access to the internet while 17 percent lack mobile cellular subscriptions.

In March 2021, Parliament was told that around 25,000 villages are not connected to the mobile and internet grid in India. Odisha has the highest number of such villages, followed by Madhya Pradesh and Maharashtra.


How Will UPI Lite Work?

Two solutions are being tested to make UPI Lite work, sources told Mint. The first is SIM overlays, and the other is deploying software through over the air (OTA) updates. Together these will enable UPI transactions without the requirement of an internet connection.

The overlay will be embedded inside the phone by the telecom provider, after which a UPI ID will be created through SMS, an official told the publication.

If the payee also has a UPI ID, the payer will just need to select their contact, enter the amount and send the money.

SIM Overlays are thin micro chips which can significantly expand the functionality of mobile phones, particularly non-smartphones and 'feature' phones.

OTA refers to methods of making data transfers or transactions wirelessly using the cellular network instead of a cable or local broadband connections.

This technology has commonly been used to download ringtones, upload images, and update games on phones (like old Nokias) without a data connection.

(With inputs from Mint)

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Topics:  RBI   Reserve Bank of India   UPI 

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