RBI to streamline AePS onboarding, to introduce ‘offline’ functionality in CBDC

The Reserve Bank of India (RBI), in its outcome of the bi-monthly monetary policy committee meeting, has announced some key measures in the areas of financial markets, regulations payment systems and fintech. In payment systems and fintech, the RBI has said it wants to enhance the robustness of the Aadhaar Enabled Payment System (AePS), which is operated by NPCI.

AePS enables customers to make digital payments in assisted mode.

“In 2023, more than 37 crore users undertook AePS transactions, which points to the important role played by AePS in financial inclusion,” says the RBI. Now the RBI wants to streamline the onboarding process, including mandatory due diligence, for AePS touchpoint operators.

The RBI has proposed to adopt a principle-based “framework for authentication of digital payment transactions”. Though RBI has not prescribed any particular AFA, the payments ecosystem has largely adopted SMS-based OTP. “The RBI has prioritised the security of digital payments, in particular the requirement of additional factor of authentication (AFA).”

The central bank has also proposed introducing programmability and offline functionality in the Central Bank Digital Currency (CBDC) Pilot. The CBDC Retail (CBDC-R) pilot currently enables person-to-person (P2P) and person-to-merchant (P2M) transactions using “digital rupee wallets” provided by pilot banks. The RBI says programmability will permit users like, for instance, government agencies to ensure that payments are made for defined benefits. Similarly, corporates will be able to program specified expenditures like business travel for employees. Second, the RBI also wants to introduce an offline functionality in CBDC-R for enabling transactions in areas with poor or limited internet connectivity.

For financial markets, the RBI’s MPC has decided to review the regulatory framework for electronic trading platforms. The RBI has called for a review in the wake of an “increased integration of the onshore forex market with offshore markets”, major tech developments, and an increase in product diversity.

In October 2018, the Reserve Bank put in place a regulatory framework for electronic trading platforms (ETPs) for executing transactions in financial instruments regulated by it. 13 ETPs operated by five operators have since been authorised, says the RBI. In the wake of changing dynamics, market makers have also made requests to access offshore ETPs offering permitted Indian Rupee (INR) products.