‘Pay… Paid’: How India plans to put paid to frauds adding delay to first-time digital payments of over Rs 2,000

The government of India is planning to add friction in the way first-time online transitions are done between two parties, in order to combat online payment frauds.

In a move aimed at curbing the surge in online payment frauds, the government is considering the introduction of a minimum time limit for the first transaction between two individuals, particularly for amounts exceeding Rs 2,000, as per a report by the Indian Express.

One way using which friction could be introduced in this process is by introducing a four-hour window for the initial transaction to be realised and settled in full between two users in digital payments, when they make a transaction for the first time

While this measure may introduce some friction in digital payments, officials argue that it is necessary to address cybersecurity concerns. If implemented, the regulation could cover various digital payment methods, including Immediate Payment Service (IMPS), Real-Time Gross Settlement (RTGS), and the Unified Payments Interface (UPI).

The intended approach is not solely to delay or restrict the first transaction upon account creation, as is already the case in some digital payment methods. Instead, the plan seeks to regulate every first transaction between two users, regardless of their independent transaction history.

Presently, when a user establishes a new UPI account, they can send a maximum of Rs 5,000 within the first 24 hours. Similarly, in the case of National Electronic Funds Transfer (NEFT), following the activation of a beneficiary, up to Rs 50,000 (in full or parts) can be transferred in the initial 24 hours.

Under the proposed plan, a four-hour time limit would apply whenever a user initiates the first payment over Rs 2,000 to another user with whom they have never transacted before.

A senior government official, speaking on condition of anonymity, stated, “We are looking to add a time limit of four hours for first-time digital transactions over Rs 2,000. The discussion will be taken up during a meeting on Tuesday with government and industry stakeholders, including the Reserve Bank of India, various public and private sector banks, and tech companies like Google and Razorpay.”

How it will work is that users will have four hours after making a payment to someone for the first time to reverse or modify the payment. It will be along the lines of NEFT (National Electronic Funds Transfer) where the transaction happens within a few hours.

The move comes in response to a rise in fraud cases, particularly in digital payments, with banks witnessing the highest number of frauds in this category during the financial year 2022-23, as per the RBI Annual Report.

The meeting on November 28 will discuss digital payment frauds, financial crimes, and cybersecurity measures needed to counter these activities.

(With input from agencies)