The Reserve Bank of India’s decision to reconsider the two-step verification process for small value online transactions is welcome, even if it has come so late in the day. Online transactions need to be regulated keeping in mind two opposing considerations — safety and convenience. The RBI’s policy has hitherto been tilted much too strongly in favour of the former and thereby not providing e-commerce — which is still in a nascent stage and contributes less than 0.25 per cent to the country’s $2 trillion economy — the much needed fillip it requires. The use of credit cards, particularly online, depends critically on customer convenience and speed of transaction.
For some time now, banks and industry players have been recommending a threshold limit for two-level authentication for online transactions. The RBI’s move to consider doing this may have been triggered by the problems this process had caused for users of Uber, the popular taxi aggregator service that had to scurry to change its payment processes, which worked satisfactorily in other geographies. Now, Uber and other taxi aggregators have been forced to tie up with a mobile payment provider in order not to flout the RBI’s authentication requirements, a fussy and inconvenient process that is far from consumer friendly. In this context, it is important to stress that the two-step authentication is not required, for either offline or online transactions, in most other countries. Apart from being possibly unnecessary, it also goes against the RBI’s own objective of encouraging consumers to use less cash and move towards an electronic payment mode. It was only recently that the central bank justified charging customers for ATM usage on the grounds that this would encourage them to shift to non-cash payments.
While it is not clear what the RBI may eventually decide, one hopes that it strikes the right balance between safety and convenience, reviewing it at periodic intervals based on user experience and incidents of fraud. International experience suggests that customers are willing to trade in a little bit of safety for seeing their transactions completed swiftly and easily. The prospect of doing away with the second level of authentication has already cheered e-commerce companies, which expect a 15 to 20 per cent growth overnight just on this simple rule change. The RBI must take this to the next level and raise the limits quickly, based on feedback over the next few months. If the evidence weighs in favour of safety, which is unlikely, then it would be reasonable for the RBI to change tack. But in the absence of this, the policy must be to facilitate e-commerce and the use of plastic rather than being both safe and sorry.