This article explains the new RBI directives for strengthening security protocols across India’s payments ecosystem to safeguard against rising fraud.
The Reserve Bank of India (RBI) recently unveiled a directive titled “Authentication Mechanisms for Digital Payment Transactions Directions, 2025,” in order to strengthen security protocols across India’s payments ecosystem. Effective from April 1, 2026, these norms will require banks and other financial institutions to implement two-factor authentication (2FA) for almost all digital payments. This move comes in the wake of rising payment frauds, especially in the highly popular United Payments Interface (UPI) system. Let us understand this directive better.
Core Highlights of RBI’s New Norms
Mandatory Two-Factor Authentication (2FA)
All major digital payment transactions must now be authenticated using two different factors (e.g. password + biometric, PIN + token etc).
One factor must be dynamically generated (such as OTP or biometric scan).
Risk-Based Additional Checks
Beyond 2FA, banks and other financial agencies are encouraged to apply additional risk-based authentication.
This is to add extra checks on behavior, device, or location for transactions that may be flagged as risky or potentially fraudulent.
Cross-Border Card-Not-Present (CNP) Transactions
From October 1, 2026, issuers of credit cards must validate authentication for b (wherein a physical card is not used), if requested by RBI.
No Ban on SMS-OTP (Yet)
The RBI directive clarifies that SMS-based OTPs, which are very popular and convenient in India will remain valid.
However, the directive encourages newer options like biometrics, device-based tokens, or passphrases which are more secure.
Issuer Liability & Customer Protections
If a financial institution fails to comply, it will be held fully liable for customer losses.
The directive mandates
system robustness
customer alerts, and
explicit consent mechanisms.
Why These Changes Matter
Enhanced fraud protection
As digital payments have grown by leaps and bounds, so have digital frauds of various kinds.
Security systems have not kept pace, forcing the RBI to act by issuing an industry-wide framework.
Innovation and flexibility
Institutions have been given the freedom to adopt authentication options beyond SMS-based OTP.
This promotes innovation in creating stronger, user-friendly approaches.
Consistency and trust
By aligning India with global best practices in payment security, these norms will boost end-user confidence shaken by the recent epidemic of frauds. This is especially true for cross-border payments.
Implementation Timeline
April 1, 2026
The core rules of two-factor authorisation including one dynamic factor will come into effect for all digital payments.
October 1, 2026:
Additional rules will apply on cross-border, non-recurring virtual, credit-card transactions become enforceable.
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