FinTech experts react to RBI’s proposal on strengthening AePS authentication

By Puja Sharma

RBI’s proposal on AePS & strengthening authentication process by implementing principle-based framework

The Reserve Bank of India (RBI) has proposed measures aimed at enhancing the security and authentication processes within the Aadhaar-enabled Payment System (AePS). The AePS is a system introduced by the National Payments Corporation of India (NPCI) that allows for basic banking transactions to be carried out using Aadhaar authentication.

Yashoraj Tyagi, CEO, CASHe said, “We welcome the RBI’s policy announcement today during its monetary policy meeting to enhance transparency and disclosure in loan transactions. The RBI has mandated all regulated entities (REs) to provide borrowers with a Key Fact Statement (KFS) for all retail and MSME loans. The KFS is a crucial document that empowers borrowers by providing essential information about their loan agreements in a clear and easy-to-understand format, including details such as the total cost of the loan.

At CASHe, we firmly believe that transparency is paramount in financial transactions, especially in lending. We commend the RBI’s initiative to enforce the provision of KFS across all retail and MSME loans, aligning with our commitment to providing our customers with clear and comprehensive loan information. Through the mandate for KFS provision, the RBI empowers borrowers to make informed decisions about their financial obligations, contributing to improving financial literacy and enhancing consumer protection in the lending ecosystem.”

The RBI’s proposal revolves around the implementation of a principle-based framework to bolster the authentication process within the AePS. A principle-based framework refers to a set of guidelines and principles that govern a system, allowing for flexibility and adaptability while ensuring compliance with regulatory standards.

Mr. Ankit Ratan, CEO & Co-founder at Signzy said, “We laud the RBI’s continuous focus on enhancing digital trust by implementing principle-based framework for authentication proposed to enhance security of digital payments. The rising financial cybercrimes are eroding the digital trust within the ecosystem, with approximately 1.1 million cases of such frauds had been registered in 2023 that involves an amount of Rs. Rs 7,488.6 crore.

By adopting a principle-based framework for authentication, businesses not only curb financial frauds but will also be able to provide a secure environment for its customers and protect their data. The RBI also emphasised streamlining the process of on-boarding of Aadhaar Enabled Payment System (AePS) service providers and introduce additional fraud risk management measures. We believe that compliance transcends mere checkbox exercises; it serves as a critical tool in ensuring the safety of customer data and protecting the reputation of businesses.”

By implementing a principle-based framework, the RBI aims to strengthen the security of AePS transactions and mitigate risks associated with unauthorized access and fraudulent activities. This framework is likely to include guidelines and standards for authentication methods, encryption protocols, data protection measures, and risk management practices.

Siddhartha Sanyal, Chief Economist and Head of Research, Bandhan Bank said, “Status quo in the repo rate in today’s MPC meeting was no surprise. One does not expect the repo rate to be lowered quickly, say for another six months. Legroom for the repo rate from the current 6.50% is limited. Also, a prudent central bank will likely refrain from a rate cut around a major political event like the general election. Most of the major global central banks also appear to be cautious to start easing policy rates.

If the RBI’s CPI forecasts come true, clarity about headline CPI inflation softening to a 4%-handle should emerge by Q2 of 2024-25 – that should offer the MPC the flexibility to cut the repo rate and maintain a real interest rate that is better aligned with their long term policy objective. Also, given that the US Fed seems to be inclined to cut their policy rates only in May 2024, if not later, the RBI will likely prefer rather cautious approach in terms of starting the rate easing cycle; after all, the Indian rate cutting cycle might be quite a shallow one.

Sanyal added, “One feels that the case for a change in policy stance to “neutral” from the current “withdrawal of accommodation” is stronger now. While that did not take place in February, the expectations of a change in the policy stance will likely be strong in the coming meetings.

Amid widespread concerns about liquidity tightness, the RBI’s communication suggested that stepping up in government spending should help infusing liquidity in the banking system. We continue to believe that in case of a need for the banking system, especially towards the end of the financial year, the RBI may provide liquidity support in a nuanced fashion. A preferred option for RBI can be to extend the tenor of variable rate repo (VRR) auctions – say, up to 28 days. It will mean flexible and measured infusion of liquidity, offering banks more durable liquidity and, thereby, better control over their liquidity management efforts.”

Interestingly, the RBI came out with further upward revision in growth projections for the upcoming financial year. If the economy indeed grows at 7% during 2024-25, India looks set to emerge as the fastest growing large economy by a distance. Such strong uptick in growth along with broadly anchored inflation will provide greater policy cushion for the MPC.