For more than a decade, digital payments in India have relied on a familiar model: a one-time password to confirm each transaction. That approach was sufficient to scale a digital economy. It is no longer sufficient to secure one.
The rise of SIM-swap fraud, phishing, and message interception has exposed the limits of the SMS-OTP as a single line of defense, and the consequences are twofold: fraud that evades detection, and legitimate customers lost to slow, high-friction checkouts. The Reserve Bank of India's Authentication Mechanisms for Digital Payment Transactions Directions, 2025 address this directly. Every digital payment must now use two independent factors, at least one generated uniquely for that transaction, and a one-time password on its own no longer meets the standard. The directions are a regulatory requirement, but they also present an opportunity: to resolve the long-standing tension between security and customer experience in Indian payments.
From uniform checks to risk-based authentication
Traditional authentication treats every transaction identically, applying the same verification and the same friction to a low-value purchase and a high-value transfer alike. This is inefficient for legitimate customers and insensitive to genuine risk.
Risk-based authentication takes a more intelligent approach. It evaluates each payment in real time against contextual signals such as the device, the location, the transaction value, and the customer's established behavior. Low-risk transactions proceed with minimal friction, while only those that present elevated risk are challenged with a stronger factor. This is the same principle the RBI applies to cross-border card-not-present transactions, where risk-based authentication becomes mandatory from October 2026. It reflects the direction of payments globally, and it separates authentication that protects customers from authentication that merely inconveniences them.
What moving beyond OTP involves
Moving beyond the SMS-OTP does not mean discontinuing it. It means no longer relying on it as the sole factor. The stronger alternatives now available are, in most cases, also more convenient for the customer:
- Passkeys and device-bound credentials, which authenticate the customer on their own device with no code to intercept.
- Biometric verification, using a fingerprint or facial recognition as the second factor.
- In-app approvals, which replace the wait for a text message with a single confirmation.
Each is substantially more resistant to phishing than a code delivered over SMS, and each tends to remove a step rather than add one. Implemented well, the most secure option is frequently also the fastest.
Compliance is the baseline; experience is the differentiator
An important point is often lost in compliance discussions. Friction at the point of payment is a leading, and frequently underestimated, cause of abandoned transactions. By challenging only higher-risk payments rather than every transaction, an institution can improve three outcomes at once: lower checkout abandonment, higher approval rates for legitimate payments, and reduced fraud. The regulatory deadline makes the case for action. The resulting improvement in customer experience is what justifies the investment over time.
Modernizing authentication without re-architecting payments
Reaching this standard rarely requires replacing existing payment systems. The work is concentrated in the decision layer: collecting the right signals, scoring risk within milliseconds so that checkout performance is preserved, applying a stronger factor only when the risk profile warrants it, and recording each decision so the institution can demonstrate how every payment was authenticated and refine its approach over time.
This is the type of solution NileForge engineers on AWS. It is designed to handle peak transaction volumes, maintain low latency on the critical payment path, and give fraud and risk teams clear visibility into every decision. It aligns directly with the RBI directions, and because authentication involves personal data, it complements the DPDP-ready data foundations discussed in our earlier article.
Turning a regulatory requirement into a competitive advantage
The domestic deadline has passed, and the cross-border requirement takes effect in October 2026. The institutions best positioned for what follows are not those treating the directions as a compliance checkbox, but those using the moment to make their payments both more secure and more convenient, and to strengthen the trust their customers place in them.
For banks, NBFCs, and fintechs looking to build payment authentication to that standard, NileForge can help define the right starting point and the path to reach it. Talk to our team about risk-based authentication on AWS.
NileForge is an AWS cloud, data, and AI engineering company. We help India's banks, NBFCs, insurers, and fintechs build secure, modern systems on AWS, from regulator-ready foundations to fraud prevention and AI.