The Reserve Bank of India (RBI) has unveiled plans to overhaul digital payment authentication, moving away from universal one-time password (OTP) checks toward a risk-based authentication system. Announced on October 6, 2025, the reform aims to streamline digital transactions, reduce friction for users, and enhance fraud prevention measures across the country’s rapidly expanding online payment ecosystem.

Under the proposed system, the level of authentication required for a transaction will depend on factors such as transaction value, device trust, user history, and risk indicators. Low-risk transactions may proceed without OTP verification, while high-risk or unusual activities would trigger additional authentication steps. RBI officials believe this approach will balance convenience with security, enabling faster and safer digital payments for both consumers and merchants.

Experts have welcomed the move, describing it as a necessary modernization of India’s digital payments infrastructure. They note that mandatory OTPs for every transaction, regardless of risk, have often caused delays and frustrated users, particularly in high-volume payment environments. By implementing a more intelligent, risk-based system, the RBI is expected to reduce unnecessary hurdles while maintaining stringent fraud detection standards.

Payment industry stakeholders also view the reform as a catalyst for innovation, as banks and fintech companies can now design smarter authentication mechanisms, leveraging AI and machine learning to assess transaction risk in real time. The shift is expected to improve customer experience, encourage wider adoption of digital payments, and reduce abandonment rates during checkout.

Additionally, the new framework aligns with global best practices in digital payment security, where risk-based authentication has become a standard in advanced markets. Analysts suggest that this initiative will strengthen India’s position as a leader in secure, efficient, and user-friendly digital financial services, benefiting the growing ecosystem of consumers, merchants, and fintech providers alike.