RBI Introduces Additional Factor Authentication for International Transactions

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About Additional Factor of Authentication (AFA)

• AFA is a security measure requiring more than one method of verification to authenticate a transaction.
• Initially, it was mandated only for domestic transactions to reduce fraud and increase consumer trust.
• It typically involves One-Time Passwords (OTPs) or biometric verification.
• The move has successfully minimized fraud in domestic online payments, fostering greater confidence in digital payments.

Need for AFA in International Transactions

• With the rise of e-commerce, Indian consumers increasingly shop from international merchants.
• International “Card Not Present” (CNP) transactions, which do not involve physical card verification, have been prone to cyber threats.
• The RBI recognized this vulnerability and extended AFA requirements to cover these cross-border transactions to enhance security.

Proposed Changes by RBI

• The RBI’s new measures will require cardholders to undergo additional verification for international transactions.
• Verification could involve OTPs sent to registered mobile numbers or biometric checks.
• The RBI plans to release a draft circular for feedback shortly, as part of a larger initiative to boost digital payment security.

Framework for Digital Payment Security

• The RBI’s 2024 draft framework mandates dynamic authentication factors for all digital transactions (excluding card-present ones).
• The authentication factors are categorized into:
  • Something the user knows: passwords or PINs.
  • Something the user has: physical devices like ATM cards.
  • Something the user is: biometric identifiers like fingerprints.
• These measures aim to make online transactions safer by ensuring that authentication details are unique and cannot be reused.

Implications for Indian Consumers

• The introduction of AFA for international transactions will provide a security level comparable to domestic transactions.
• It is expected to boost consumer confidence and promote online shopping with overseas merchants, knowing their transactions are well-protected against fraud.