RBI New Digital Payment Authentication Rules 2026: Moving Beyond SMS OTP, Biometric Verification, Risk-Based Authentication and What Users Must Know

Oct 7, 2025

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The Reserve Bank of India (RBI) has announced a major revamp in digital payment authentication rules, effective April 1, 2026. This move is aimed at strengthening security in India’s rapidly growing digital payments ecosystem while reducing fraud, phishing, and unauthorized transactions.

Currently, most digital transactions — including UPI, debit/credit cards, net banking, wallets, and IMPS — rely heavily on SMS-based One-Time Passwords (OTPs) for authentication. While SMS OTPs have been widely used for nearly two decades, rising incidents of SIM swap fraud, phishing attacks, and SMS interception have exposed vulnerabilities in the system.

The new guidelines require two-factor authentication (2FA) for all digital transactions and emphasize biometric and app-based authentication methods over traditional SMS OTPs, ensuring enhanced security and a seamless user experience.

This article provides a comprehensive overview of the new RBI rules, their implications for users and financial institutions, practical steps for compliance, and the broader impact on India’s digital payment ecosystem.

Key Highlights of RBI Digital Payment Authentication Rules 2026

Feature	Current System	New RBI Guidelines (April 2026)	Implications
Two-Factor Authentication (2FA)	Only one dynamic factor sometimes (SMS OTP)	Mandatory 2FA for all digital payments	Improved security, reduces fraud
SMS OTP	Widely used	Still allowed but not preferred; optional secondary factor	Less dependency on vulnerable SMS channels
Biometric Authentication	Limited	Fingerprint, facial recognition required or optional for 2FA	Faster, more secure authentication
App-Based Authentication	Few banks/UPI apps offer it	Mandatory for banks to provide app-based dynamic authentication options	Reduces SIM-based fraud, improves UX
Device-Native Authentication	Rarely used	Device fingerprint or face unlock can be used as one factor	Secure, convenient
Risk-Based Authentication	Not fully implemented	Transaction amount, location, user behavior determine additional checks	Balances security with convenience
Cross-Border Transactions	Standard OTPs used	Additional dynamic verification required for card-not-present transactions	Aligns with global best practices

Two-Factor Authentication: The Backbone of Security

The new RBI rules mandate two-factor authentication for every digital payment. Users must authenticate transactions using two different categories:

Something the user knows:
- PIN, password, or passphrase.
Something the user has:
- Mobile device, banking token, or card.
Something the user is:
- Biometric data such as fingerprint or facial recognition.

At least one factor must be dynamically generated for each transaction, making unauthorized access extremely difficult.

Benefits of Two-Factor Authentication

Reduces incidents of fraud by over 50–60%, based on global studies of multi-factor authentication adoption.
Provides real-time protection even if one authentication factor is compromised.
Encourages adoption of biometric and app-based methods, which are faster and more reliable than SMS OTPs.

Moving Beyond SMS OTPs

SMS-based OTPs have long been the default for digital transaction authentication. However, the RBI highlights several limitations:

SIM Swap Fraud: Criminals take control of a mobile number and intercept OTPs.
Phishing and Smishing: Fake SMS messages trick users into revealing OTPs.
Delayed or Failed Delivery: Network issues can delay OTPs, blocking transactions.

The new guidelines encourage biometric, app-based, and device-native authentication methods to overcome these vulnerabilities.

Biometric and App-Based Authentication

Biometric Authentication

Fingerprint sensors and facial recognition will become primary authentication factors.
Biometric verification is faster, reduces transaction time, and is hard to replicate by fraudsters.

App-Based Authentication

Banks and payment apps will provide dynamic in-app approvals.
Users can approve transactions without relying on SMS, using push notifications and app-generated codes.

Device-Native Authentication

Smartphones with secure elements can allow device-level authentication, such as face ID or fingerprint ID, to act as one factor.
This method ensures end-to-end encryption and reduces dependency on vulnerable SMS networks.

Risk-Based Authentication

RBI permits risk-based authentication, where additional checks depend on transaction risk.

Factors Considered:

Transaction value
Merchant or payee risk
User behavior (unusual location, device, time)

Benefits:

Minimizes friction for low-risk transactions
Provides extra security for high-value or unusual payments

For example, a ₹100 UPI transaction might require only a PIN or device authentication, whereas a ₹2,00,000 cross-border card-not-present transaction would require multiple dynamic factors, including biometric verification or app-based approval.

Cross-Border Transactions

The new RBI rules also impact international payments:

Non-recurring cross-border transactions require enhanced verification for card-not-present transactions.
Issuers must validate transactions as per merchant or acquirer requests to prevent unauthorized foreign payments.

This brings India in line with global standards for digital payment security.

Implications for Users

Area	Impact on Users
Security	Reduced chances of fraud, phishing, and unauthorized access
User Experience	Faster, app-based and biometric approvals improve convenience
Compliance	Users may need to update banking apps, register biometrics, or enable device authentication
Transaction Confidence	Higher trust in digital payments due to robust authentication

Implications for Financial Institutions

System Upgrades: Banks and payment providers must implement app-based and biometric authentication solutions.
Customer Education: Users must be guided on setting up new authentication methods.
Regulatory Compliance: Ensuring all digital transactions comply with RBI guidelines to avoid penalties.
Fraud Monitoring: Integration of AI-based monitoring for detecting suspicious or high-risk transactions.

Challenges and Considerations

User Adaptation: Some users may face difficulty adopting biometric or app-based methods.
Device Compatibility: Older smartphones may not support advanced authentication features.
Operational Costs: Banks and PSPs may need to invest heavily in app upgrades, biometric devices, and secure infrastructure.
Privacy Concerns: Handling sensitive biometric data requires strict adherence to data protection and cybersecurity standards.

Timeline for Implementation

Phase	Action	Timeframe
Awareness & Education	Notify users about new rules and guide on setup	Jan–Mar 2026
System Upgrade	Banks update apps and integrate biometric/device-native authentication	Jan–Mar 2026
Official Enforcement	All digital payments require 2FA with advanced authentication	April 1, 2026
Monitoring & Feedback	RBI monitors compliance and addresses implementation challenges	April–Dec 2026

Conclusion

The RBI’s new payment authentication rules represent a significant step forward in securing India’s digital payments ecosystem. By moving beyond SMS OTPs and adopting biometric, app-based, and risk-based authentication, the central bank is aiming to reduce fraud, increase trust, and enhance user experience.

For users, preparation involves updating apps, registering biometrics, and enabling device-native authentication. Financial institutions must invest in infrastructure and educate users to ensure smooth adoption.

Overall, these guidelines position India alongside global leaders in secure, efficient, and user-friendly digital payment systems.

Disclaimer

This article is for informational purposes only. Details about RBI’s digital payment authentication rules are based on publicly available sources and media reports. Users should refer to official RBI notifications and their respective banks for authoritative information. This article does not constitute financial or legal advice.

About the author

I’m Himanshu Dhar, a dedicated MIS trainer proudly associated with I Turn Institute. My journey in the realm of data management and automation spans over 14 enriching years. My passion for this field extends to freelancing projects, where I bring real-world practicality into my teaching. My impact in education is marked by the success of over 25,000 students I’ve had the privilege of mentoring, hailing from diverse backgrounds. Beyond the classroom, I’ve had the honor of conducting corporate training sessions and seminars, catering to the unique needs of businesses. Let’s unlock your potential together in the realm of data analysis and automation.