DH Deciphers | Digital payments without internet: How's that possible?

One of the prerequisites for making online payments is that you have to be, well, online. All the talk of cashless payments is meaningless if you do not have an internet connection, or even if you do, it doesn't work. While India has made some great strides in digital payments (UPI, take a bow), there are still large swathes of rural and semi-urban India where cashless transactions are either unheard of or simply don't work.

The Reserve Bank of India (RBI) wants to change this. Just last week, the central bank released a framework for offline digital payments. The move has generated a buzz and could potentially revolutionise how ordinary Indians make and receive payments. Here's more on it:

What are offline digital payments?

For the uninitiated, offline digital payments are transactions that can be made without internet connectivity (mobile data, Wi-Fi, hotspot or anything else). While the current digital payments require internet connectivity, offline digital payments can take place even in places with weak or no internet and mobile network connectivity, especially in semi-urban and rural areas.

Do we really need them?

India's robust UPI (Unified Payments Interface) system has greatly pushed digital payments in the post-Covid era. In December 2021, as much as Rs 8.27 lakh crore was transacted digitally, almost twice the figure achieved in December 2020 and more than four times that reported in December 2019. But as we said earlier, these digital payments need access to internet connectivity, which is still a luxury in many rural parts of India.

Across the country, cash still rules the roost (despite the double whammy of demonetisation and pandemic, by the way). The (physical) currency in circulation on December 10, 2021, was Rs 30 lakh crore, RBI data shows. Answering a question in the Lok Sabha on March 17, 2021, then minister of communications Ravi Shankar Prasad stated that as many as 25,067 villages in the country still do not have mobile connectivity. Which means people living there cannot make digital payments using UPI. Which is, good news for cash.

How will offline payments take place?

According to the RBI’s framework, new or existing digital payment providers like PhonePe, GPay, Paytm, etc may enable offline digital payments through pre-loaded cards, wallets or mobile devices. These transactions should be conducted in the "proximity mode" or face to face and would not require an additional factor authentication in the form of OTP (one-time-password).

Is it all hunky-dory or are there any disadvantages?

Although offline digital payments can result in better financial inclusion, you would not be able to pay or receive more than Rs 200 in a single transaction, according to the RBI framework. And the aggregate value of all offline payments that can be done at a given time cannot exceed Rs 2,000. This means that once you exhaust the total limit of Rs 2,000, you will need an additional factor authentication (for which you need to have mobile or internet connectivity) to replenish the limit and start transacting offline again.

Nevertheless, while the transaction and aggregate limits might look demotivating for those with no mobile or internet connectivity, offline payments could be quite useful for those who do not have cash or are stuck with weak or no internet connectivity.

When will these offline digital payments go live?

The new framework is applicable with immediate effect, the RBI's news release said.
In August 2021, digital payments company Visa announced an initiative in partnership with YES Bank and Axis Bank to allow users to make transactions using its chip-based debit, credit and prepaid cards even in places with low or no internet connectivity. In December 2020, it conducted a pilot programme for offline payments in five villages of Karnataka in line with the RBI’s earlier guidelines. With the latest RBI framework, more players are likely to join in alongside the likes of PhonePe, GPay and Paytm to offer offline digital payments.