India: ‘Two Factor Authorization' Requirement Relaxed: Welcome Step In The Demonetization Era

Last Updated: 16 December 2016
Article by Aaron Kamath, Rakhi Jindal and Vivek Kathpalia
  • Earlier, all online transactions through credit / debit cards issued in India were subject to a mandatory 'second factor authorization'.
  • Reserve Bank of India directs that this additional factor authorization requirement may be relaxed, at the option of the customer, for transactions of up to INR 2,000 (approx. USD 30).
  • Banks and authorized card networks directed to educate customers about risks involved in opting not to be subject to the additional factor authorization. 


India continues to be one of the high-cash usage economies with more than 78% of the transactions executed with fiat currency1. While there may be various reasons which may be attributed to the slow adoption of digital payments in India ( such as low internet penetration, challenges in ensuring use of banking facilities by all), the Government of India has been taking significant steps and has launched several initiatives to promote the transition to the digital payments. This includes the recent step taken by the Government of India to demonetize existing INR 500 (approx. USD 7.5) and INR 1,000 (approx. USD 15) denominations of currency in lieu of fresh INR 500 and INR 2,000 (approx. USD 30) notes being circulated.

India's central bank, i.e. the Reserve Bank of India ("RBI") has on December 6, 2016, issued a notification through which the requirement of an 'additional factor of authentication' ("AFA") for card not present ("CNP") transactions up to INR 2,000 (approx. USD 30) could be relaxed by banks and authorized card networks, at the option of the customer ("New Notification").

RBI's Mandate Prior to the New Notification

Earlier, the RBI had directed2 banks to mandatorily put in place an AFA on information that is not visible on the credit / debit cards used in CNP transactions. This 'second factor' authentication, as commonly known to the public, is based on information known or available to the card holder but is not printed on the card. Since this mandate by the RBI, banks have implemented the AFA requirement primarily though one time passwords being immediately sent to the users' registered mobile number, or through use of internet passwords. This mandate by the RBI was applicable to all credit / debit cards issued in India and where there was no outflow of foreign exchange contemplated. Further, this mandate was applicable to all recurring transactions contemplated between merchants and cardholders.

The New Notification

The New Notification3 issued by the RBI relaxes the requirement of AFA for CNP transactions of up to INR 2,000 (approx. USD 30). Authorized card networks and card issuing banks may choose to relax the AFA requirement for customers upon taking their consent. Customers opting for this facility would need to go through a one-time registration process with the issuing bank. Further, lower transaction limits may be set by the customer in opting out of the AFA requirements.

In adhering to the New Notification and facilitating and giving customers an option to opt out of the AFA requirements, banks and authorized card networks would need to: 

  1. Conduct 'velocity' checks to ascertain the value and frequency of transactions in which the AFA requirement is not carried out,
  2. Educate and make customers aware that it is optional for them to opt out of the AFA requirement and that they are free to use other forms of AFA requirements (although the RBI has not specified other forms of AFA requirements that may be adopted),
  3. Educate and make customers aware of the mechanism and risk involved in opting out of the AFA requirements, and
  4. Indicate the maximum liability of the customer in the event of them opting out of the AFA requirements. 

In addition to the above, the New Notification provides that banks and authorized card networks should bear the full liability in the event of a security breach or compromise in the authorized card network.


The immediate take-away from the New Notification is that customers availing of this facility would not need to re-enter the card details for every transaction on a merchant website and also go through an AFA by way of a one-time password or internet password. In such cases, customers will not be required to re-enter the card details for every transaction at merchant locations and would only need to use their login credentials to avail of the facility.

The issuance of the New Notification is a welcome step by the RBI in the wake of 'demonetization' in India and should encourage the adoption of digital payment methods. It is clear that the RBI has made an attempt to aid customer convenience for low value card transactions, given the current liquid cash crunch in the country. This facility is an added convenience for customers in making digital payments to e-commerce website operators, radio taxi operators, depositing money in e-wallets, and in other online transactions through their credit / debit cards. Other initiatives introduced by the Government of India to foster financial inclusion and promote digital payments include the Unified Payment Interface, National Automated Clearing House, RuPay and the Bharat Bill Payment System.

Further, as per recent media reports,4 the Government is also contemplating waiving service tax chargeable on services by an acquiring bank in relation to settlement of an amount up to INR 2,000 (approx. USD 30) through debit or credit cards, in a bid to promote digital transactions.

Only time will tell us the net effect of such initiatives aimed to foster financial inclusion and promote digital payments.


1 Digital Payments 2020, The Making of A $500 Billion Ecosystem In India (BCG & Google), July 2016 available at

2 Vide Notification RBI/2014-15/190 dated August 22, 2014; "Security Issues and Risk Mitigation measures related to Card Not Present (CNP) transactions"; available at:; along with other circulars and notifications.

3 Vide Notification RBI/2016-17/172 dated December 6, 2016; "Card Not Present transactions – Relaxation in Additional Factor of Authentication for payments up to 2000/- for card network provided authentication solutions"; available at:

4 Government to waive service tax on card transactions of up to Rs 2,000, dated December 8, 2016. Available at:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Aaron Kamath
Vivek Kathpalia
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.