How the UAE’s Digital Payment Rules Are Driving a Shift Beyond OTP Authentication
TLDR
The United Arab Emirates is at the forefront of the Gulf’s digital payments transformation. As the Central Bank of the UAE (CBUAE) strengthens its regulatory framework to safeguard instant and cross-border payments, traditional one-time passwords (OTPs) are losing ground. These legacy methods no longer provide adequate protection against phishing, SIM-swap attacks, or session hijacking. Under new expectations for secure customer authentication, UAE banks, wallets, and BNPL platforms are exploring device-bound, biometric, and zero-trust authentication models. Ideem’s Zero-Trust Secure Module (ZSM) and Passkeys+ enable this shift — combining compliance, fraud prevention, and a seamless user experience for the region’s fast-growing digital ecosystem.
The UAE’s digital payments evolution
The UAE has rapidly become one of the most advanced digital payment markets in the Gulf, supported by robust infrastructure and an innovation-friendly regulator. The CBUAE’s Retail Payment Services and Card Scheme Regulation, alongside its Stored Value Facilities framework, aims to promote trust, interoperability, and security in a sector defined by mobile-first consumers and real-time settlement.
At the same time, the region’s explosive adoption of cards, BNPL, and digital wallets has made it a target for increasingly sophisticated fraud. Attackers now exploit the weakest link in the chain — authentication flows still reliant on SMS or email-based OTPs. These outdated methods, once seen as a security standard, now present major vulnerabilities in a market where transactions happen in seconds.
The CBUAE’s evolving guidance makes it clear: institutions must move toward dynamic, risk-based, and device-aware authentication systems that protect users without slowing them down.
Why OTPs no longer work
OTPs were designed for an earlier generation of online banking. Today, they’re too slow, too vulnerable, and too dependent on external communication networks.
Fraudsters exploit OTP-based systems through:
- Phishing and relay attacks, where users unknowingly share codes on fake sites.
- SIM swaps and call forwarding, which divert SMS messages to attackers’ devices.
- Session hijacks, in which malware intercepts OTPs in real time during active logins.
These methods succeed because OTPs separate the authentication factor from the user’s trusted device. The result: even if a bank uses MFA, it can’t be sure who or which device completed the transaction.
In a real-time economy like the UAE’s, this gap creates unacceptable risk. The industry’s next phase of security is defined by deterministic, device-bound authentication.
The regulatory push for stronger, adaptive authentication
The UAE’s payment regulations are designed to balance innovation with safety. Under the CBUAE’s frameworks, licensed payment service providers and banks must adopt “strong customer authentication” that includes multiple, independent verification factors.
This requirement echoes a broader global shift — from static, step-based security toward adaptive and risk-aware models. The CBUAE’s direction aligns with trends already seen in the EU’s PSD2 framework and India’s RBI directives, but with a focus on real-time fraud detection and user experience.
For financial institutions, this means implementing authentication that is:
- Dynamic, responding to the risk level of each transaction.
- Deterministic, ensuring identity is tied to a verified device.
- Frictionless, maintaining user convenience across mobile and web channels.
Device binding and biometric passkeys meet all three criteria.
Device binding: security anchored in the user’s device
Device binding links a user’s identity to a specific, cryptographically trusted device. Instead of relying on OTPs sent over the network, verification happens within the device’s secure environment using hardware-level encryption.
When a transaction occurs, the system checks:
- Whether the request came from a registered, uncompromised device.
- Whether the user authenticated through a trusted biometric or passkey.
- Whether the device’s security posture matches previous records.
Only when these conditions are met does the payment proceed. If anomalies are detected — a new device, location, or pattern — additional verification is triggered automatically.
This approach eliminates the need for manual OTP entry while making fraud nearly impossible. A stolen password or SIM card no longer gives an attacker control.
Beyond compliance: why this improves conversion
Many financial institutions fear that stronger security will slow users down. In reality, adaptive authentication improves conversion by reducing unnecessary friction.
When device-bound authentication is implemented intelligently:
- Returning users on known devices authenticate instantly through biometrics.
- Risky transactions trigger extra checks dynamically, not by default.
- OTP delays and delivery failures — a leading cause of checkout abandonment — disappear entirely.
For cards, wallets, and BNPL providers, this shift means faster payment completion, fewer drop-offs, and greater trust. Compliance becomes a driver of growth rather than a constraint.
Ideem’s ZSM and Passkeys+ enable this experience by combining cryptographic device verification with zero-trust logic. The system verifies both who is authenticating and where the request originates, allowing compliant, real-time approvals that feel effortless to users.
The Gulf-wide ripple effect
The UAE’s regulatory lead will likely shape authentication standards across the GCC. As Saudi Arabia, Bahrain, and Qatar modernize their payment systems, regional alignment around strong customer authentication is accelerating.
Institutions that adapt early in the UAE will gain a technical and reputational advantage as these models spread. Device-bound authentication, already recognized by global standard bodies like the FIDO Alliance, positions financial platforms to scale securely across the Gulf’s interoperable digital payment landscape.
The move beyond OTPs is not just a local compliance requirement — it’s a regional strategy for sustainable trust and customer loyalty.
A readiness checklist for UAE payment providers
- Audit current authentication methods
Identify where OTPs and passwords still exist across mobile and web flows. - Implement device binding
Link accounts to unique device identities verified cryptographically. - Adopt biometric and passkey authentication
Replace SMS-based verification with platform-native biometrics and secure passkeys. - Deploy real-time risk and anomaly detection
Evaluate every session and transaction continuously, not periodically. - Use Ideem’s ZSM and Passkeys+
Ensure compliance with CBUAE expectations while delivering frictionless, secure authentication for cards, wallets, and BNPL users.
Looking ahead
As the UAE cements its position as a regional fintech hub, the move beyond OTPs marks the beginning of a broader transformation — one where user trust, compliance, and conversion work together.
Banks, payment providers, and fintechs that modernize authentication today will not only meet regulatory requirements but also redefine what a secure, seamless payment experience feels like. Ideem’s Zero-Trust Secure Module and Passkeys+ make that possible, combining real-time verification, device binding, and cryptographic assurance.
In the Gulf’s fast-moving digital economy, the safest payment is the one that happens instantly — and invisibly — on a trusted device.
Sources
- Central Bank of the UAE – Retail Payment Services and Card Scheme Regulation
https://www.centralbank.ae/en/legislation-and-regulation - Central Bank of the UAE – Stored Value Facilities Regulation
https://www.centralbank.ae/en/legislation-and-regulation - Gulf Business – UAE Fintech Sector to Grow 17% Annually Amid Regulatory Innovation
https://www.gulfbusiness.com/uae-fintech-sector-to-grow-17-annually/ - The Paypers – Strong Customer Authentication in the Middle East: Lessons from the UAE
https://thepaypers.com/expert-opinion/strong-customer-authentication-in-the-middle-east--1262143
Ideem – Device Binding and Passkeys+ for Frictionless Authentication https://www.useideem.com/passkeys-plus