How RBI’s New 2FA Mandate Impacts India’s Digital Payments
TLDR
The Reserve Bank of India’s Authentication Mechanisms for Digital Payment Transactions Directions, 2025 mandate two-factor authentication (2FA) for all domestic digital payment transactions by April 1, 2026. Every transaction must include at least one dynamic factor — something unique for each payment — grounded in the principles of “something you know, something you have, and something you are.” This framework creates new opportunities for wallets, banks, and payment gateways to move beyond SMS-based OTPs toward device-bound passkeys, app-native credentials, and biometrics. Stronger authentication no longer has to mean more friction. With the right implementation, it can improve checkout conversion, boost approval rates, and enhance trust. Ideem’s Zero-Trust Secure Module (ZSM) and Passkeys+ help financial institutions transition seamlessly to device binding plus passkeys, meeting RBI compliance while elevating the user experience.
A regulatory framework reshaping authentication
The RBI’s 2025 Directions redefine digital payment authentication across India’s financial ecosystem. By April 1, 2026, every domestic transaction — from UPI and cards to wallet payments and recurring mandates — must include two distinct factors of authentication. For cross-border card-not-present transactions, additional validation must be implemented by October 1, 2026.
At the heart of this mandate lies the classic triad of authentication factors:
- Something you know (PIN, password, or code)
- Something you have (registered device or token)
- Something you are (biometric or passkey-based identity)
The RBI’s move away from dependence on SMS-OTP reflects a broader evolution toward modern, cryptographic security. OTPs are still permitted but are no longer considered the only viable option. With widespread SIM-swap fraud and OTP interception, financial institutions are expected to adopt authentication methods that are more deterministic, dynamic, and resistant to phishing.
This regulatory clarity sets the stage for institutions to modernize infrastructure, improve reliability, and provide users with faster, more secure experiences.
Device binding and passkeys: a natural fit
The “something you have / know / are” framework aligns perfectly with device binding and passkey-based authentication. Device binding links a user’s identity to a specific, trusted device. Passkeys add biometric or cryptographic confirmation, turning each transaction into a unique challenge-response event.
For users, this means logging in or authorizing payments with familiar actions — a fingerprint, a facial scan, or a secure in-app prompt. For institutions, it means establishing a deterministic device identity that eliminates the uncertainty of OTP delivery or token mismatch.
Ideem’s ZSM and Passkeys+ make this shift straightforward. They enable financial institutions to embed authentication within their native apps, so verification occurs directly on the user’s device rather than through third-party channels. This approach reduces dependence on unreliable SMS networks while satisfying the RBI’s requirements for multi-factor, dynamic authentication.
Why stronger authentication can improve conversion
Historically, security and user experience have been viewed as opposing forces. The RBI’s framework demonstrates that this trade-off no longer needs to exist. When authentication happens within the device — rather than via a disconnected OTP flow — the process becomes faster, safer, and more intuitive.
Cart abandonment and failed checkout attempts often result from friction at the authentication step: delayed OTPs, app switching, or user confusion. Device-bound passkeys streamline this process by allowing instant verification within the app environment. The result is lower abandonment and higher approval rates.
For wallets, BNPL providers, and payment gateways, authentication modernization can therefore deliver three simultaneous benefits:
- Regulatory compliance with the RBI’s Directions
- Reduced fraud exposure through cryptographic device identity
- Improved conversion through simplified user flows
In other words, what began as a compliance requirement has evolved into a growth lever.
Steps for product and growth teams to prepare
1. Assess your authentication stack
Map out every transaction type your platform handles — from peer-to-peer payments to recurring mandates. Identify which factors are currently static, OTP-based, or vulnerable to delivery failures.
2. Implement deterministic device binding
Ensure that each user’s device is cryptographically linked to their account. This guarantees the “something you have” factor is always verifiable, even offline or in low-connectivity regions.
3. Adopt passkeys and biometrics
Integrate platform-native passkeys (Android, iOS, and webauthn-compatible) for a seamless authentication flow. Use biometrics to replace passwords and enhance usability.
4. Add risk-based logic
Incorporate adaptive authentication that evaluates device, location, and behavioral patterns in real time. Low-risk transactions can remain seamless; high-risk ones can trigger step-up authentication.
5. Test for friction and conversion
Run A/B tests comparing OTP-based flows against device-bound passkeys. Measure checkout completion rates, approval percentages, and fraud losses. The data will validate the ROI of upgrading authentication.
6. Partner with a scalable authentication provider
Use a platform like Ideem’s Zero-Trust Secure Module to manage credential lifecycle, device registration, and cross-channel integration securely. It reduces engineering overhead while keeping compliance intact.
Turning compliance into an advantage
India’s fintech sector has consistently led global innovation in digital payments. The RBI’s new authentication framework signals a further maturing of that ecosystem — one that prioritizes both resilience and user trust.
Institutions that act early will not only meet regulatory expectations but also redefine checkout performance. Device-bound authentication ensures security lives where the user lives — inside the app, on the device, verified in real time. That shift transforms the payment experience from a compliance task into a competitive differentiator.
Ideem’s ZSM and Passkeys+ help banks, wallets, and gateways achieve this transformation seamlessly. By embedding device binding and passkeys into existing workflows, institutions can enhance security, accelerate approvals, and maintain the frictionless experience users expect.
Conclusion
The RBI’s Directions are more than a mandate — they are a blueprint for the next generation of digital payments in India. Wallets, banks, and gateways that modernize authentication now will find themselves at the forefront of compliant, high-conversion payment ecosystems.
With Ideem’s ZSM and Passkeys+, financial institutions can strengthen their authentication frameworks without slowing users down. Security and convenience are no longer trade-offs. They are the same product — and the future of digital trust in India depends on how quickly the industry makes that connection.
Sources
- Reserve Bank of India – Authentication Mechanisms for Digital Payment Transactions Directions 2025
https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12898 - The Economic Times – RBI issues directions for digital payment transaction authentication mechanism
https://economictimes.indiatimes.com/wealth/save/rbi-issues-directions-for-digital-payment-transaction-authentication-mechanism/articleshow/124115819.cms - Probe42 Resources – RBI Authentication Mechanisms for Digital Payment Transactions Directions, 2025
https://resources.probe42.in/regulatory-updates/rbi-circulars/authentication-mechanisms-digital-payment-transactions-2025/ - Hindustan Times – RBI to implement new payment authentication rules beyond SMS OTP from April 2026
https://www.hindustantimes.com/business/rbi-to-implement-new-payment-authentication-rules-beyond-sms-otp-from-april-2026-know-full-details-101758861127882.html - AffairsCloud – RBI issues Digital Payment Authentication Directions from April 1 2026
https://affairscloud.com/rbi-issues-digital-payment-authentication-directions-from-april-1-2026/