NPCI Bets on Startup Magic to Secure UPI with Biometrics

Tired of forgetting your UPI PIN? How will UPI transactions become safer and more convenient? Is NPCI teaming up with tech startups to introduce biometric authentication? Will fingerprint and face ID replace the traditional PIN? Find out.

In a significant move towards enhanced security, the National Payments Corporation of India (NPCI) is in talks with several startups to introduce biometric authentication for Unified Payments Interface (UPI) transactions. According to a report by Money Control, sources familiar with the matter reveal that this change will enable fingerprint authentication on Android devices and face ID verification on iPhones, replacing the traditional UPI PIN.

A New Era of Secure Payments

Currently, UPI transactions rely on a Personal Identification Number (PIN) for second-factor authentication, much like the OTP used in card payments. The primary factor of authentication for UPI is device binding through SMS when users enroll their mobile devices. However, the Reserve Bank of India (RBI) has expressed concerns over increasing UPI scams related to PIN frauds. This urgency has propelled NPCI to explore alternative authentication methods, including biometrics.

"In order to enable the payments ecosystem to leverage technological advancements and implement alternative authentication mechanisms, it has been decided to publish a Framework on Alternative Authentication Mechanisms for Digital Payment Transactions," stated the RBI in its recent announcement.

NPCI is reportedly still finalizing its partner for this initiative, with discussions revolving around the financial and legal terms of the partnership. The rollout is anticipated to take over three months once a technology service provider is secured. During the initial stages, both PIN and biometric authentication are likely to coexist, ensuring a smooth transition for users.

How Big Is UPI in India- Understanding the Dynamics

According to Statistica, in financial year 2023, there were over 84 billion UPI transactions worth about 139 trillion Indian rupees across India. The number of transactions was estimated to rise up to over 456 billions in financial year 2028 in the country. Unified Payments Interface (UPI) was introduced by National Payments Corporation of India (NPCI) in 2016 and facilitates inter-bank transactions.

Number of Unified Payments Interface transactions across India from financial year 2019 to 2023, with estimates until 2028(in billions)

UPI Satistics

Rising Threat of Digital Scams: A Growing Concern

Between January 2020 and June 2023, nearly half of all financial fraud involved the UPI system. Government figures reveal over 95,000 cases of UPI-related fraud in the financial year ending April 2023, up from 77,000 in the previous year.

India has seen a dramatic rise in digital payment fraud, with losses skyrocketing more than fivefold to a record 14.57 billion rupees ($175 million) in the fiscal year ending March 2024, according to the Reserve Bank of India's (RBI) latest annual report. This alarming increase coincides with India's rapid transformation into a digital payments powerhouse, fueled by the widespread adoption of the Unified Payments Interface (UPI) since its launch in 2016.

UPI transactions have seen explosive growth, surging 137% in the past two years to reach a staggering 200 trillion rupees, as per RBI data. Factors such as affordable internet access and greater financial inclusion have contributed to the widespread popularity of digital payments across the country.

However, this growth has attracted the attention of fraudsters, who are increasingly targeting vulnerable users. The combination of India's rapid digital adoption and the surge in online transactions has made UPI a prime target for financial scams, highlighting the need for robust security measures and heightened consumer awareness.

RBI's Call for Enhanced Security

In response to the escalating threat of financial fraud, the Reserve Bank of India (RBI) has rolled out several high-profile awareness campaigns aimed at educating consumers about the risks. These initiatives frequently feature prominent figures, including Bollywood icon Amitabh Bachchan, who cautions users to exercise vigilance when conducting online transactions.

The RBI's recent proposal for alternative methods of additional factor authentication (AFA) for digital transactions includes PIN, passwords, cards, and various biometrics such as fingerprints. The regulator favors behavioral risk patterns and biometric authentication over traditional means to mitigate fraud risks effectively.

NPCI’s interest in biometric authentication dates back more than three years. In 2021, the organization hosted the NPCI PayAuth Challenge, inviting startups to present innovative authentication methods. Winners included Tech5, Juspay, MinkasuPay, and Infobip. The startups demonstrated their proof of concept (POC) to the UPI Steering Committee, consisting of various banks and UPI apps. While Tech5 and MinkasuPay made notable presentations, banks showed a preference for MinkasuPay due to its minimal impact on existing banking infrastructure.

The Future of UPI Transactions

UPI, India’s most popular digital payment method, handles 80% of all online transactions in the country. With the introduction of biometric authentication, the NPCI aims to enhance security, reduce fraud, and streamline the user experience by leveraging advanced technology. Fingerprint and face ID verification will replace traditional UPI PINs, addressing vulnerabilities and making transactions more secure. This move not only mitigates the risk of PIN-related fraud but also simplifies the payment process, providing users with a seamless and secure digital experience.

Anticipating a Secure Digital Payment Landscape

As NPCI gears up to implement biometric authentication, the anticipation builds around the transformative impact this will have on digital payments. By leveraging technological advancements, NPCI is set to revolutionize the UPI ecosystem, making transactions more secure and user-friendly.

NPCI's move comes in the backdrop of the Reserve Bank of India’s concern about multiple UPI scams that keep happening because of PIN-related frauds.

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