RBI clears decks for contactless payment system

The Reserve Bank of India (RBI) has cleared the decks for contactless transactions using near field communications (NFC) technology, even as the State Bank of India (SBI) announced the largest contactless card rollout.

Accordingly, RBI has relaxed the extant instructions relating to the need for additional factor of authentication (AFA) for small value card transactions using contact-less cards. However, the central bank has permitted AFA relaxation only for transactions for a maximum value of Rs2,000 per transaction.

Prior to this relaxation, after tapping the card at a point of sale machines, the customer had to punch their PIN number as an additional factor authentication to avoid any chances of fraud.

The move will boost electronic transactions at retail outlets and also fasten the payments at toll services. The relaxation comes on the day SBI launched sbiINTOUCH contactless card on 5,000 PoS machines.

The limit of Rs2,000 per transaction will be the limit set across all categories of merchants in the country where such contactless payments will be accepted.

Beyond this transaction limit, the card has to be processed as a contact payment and authentication with PIN (AFA) will be mandatory, RBI stated in a notification on Thursday.

Even for transaction values below Rs2,000, the customer may choose to make payment as a contact payment, which has to be facilitated by both issuing and acquiring banks. In other words, customers cannot be compelled to do a contactless payment, RBI said.

Banks are free to facilitate their customers to set lower per-transaction limits. The responsibility for authorising the contactless payment based on such card-based limits will lie with the card issuing banks.

The RBI's decision to allow such transactions for up to Rs2,000, without any PIN requirement, will pave the way for electronic payments in public transport, highway tolls and food outlets. SBI plans to upgrade over 1 lakh retail outlets for contactless acceptance.

Making the first contactless payment at a Starbucks outlet in Mumbai, SBI chairman Arundhati Bhattacharya said that several retail chains have agreed to install the acceptance device for contactless cards. The bank has over 2.2 lakh credit card swipe machines which would be gradually upgraded to accept contactless payments as well.

RBI's decision to waive PIN authentication will hasten acceptance of 'tap and pay' electronic payments at retail outlets as a transaction will be completed in a couple of seconds.