Offline Digital Payments: Boosting Financial Inclusion in India

Clocking a record high of 9.96 billion transactions in July 2023, UPI has redefined the way people and businesses transact in India. But this digital payments gamechanger relies on an internet connection to function, as transactions require seamless and uninterrupted communication between a host of payment players.

A QR payment flow begins with the customer scanning a QR code for the required amount. The customer-merchant Payment Service Provider (PSP) takes charge of the approval process through National Payments Corporation of India (NPCI), swiftly debiting the money from the issuer bank and crediting it to the merchant's acquiring bank in under 60 seconds. This intricate communication among numerous servers requires a strong network connection. 

In network-scarce regions of India, digital transactions remain a challenge for the masses. Internet and system downtime are common not just in rural areas, but also in spaces such as building basements and network-congested nooks in cities. Network inaccessibility keeps a large section of the population out of the ambit of digital payments and is a challenge to financial inclusion. 

Fortunately, there’s a light at the end of this tunnel! 

Offline Payments, Now a Reality

Offline payments, as the name implies, enable consumers to make digital payments in an offline environment. It provides the convenience of completing a transaction in a highly secure and compliant environment, in both network-congested areas and in the absence of internet connectivity. This also includes small ticket transactions. 

Nearly seven out of ten UPI transactions are valued under Rs 500. Owing to this pattern, the Reserve Bank of India (RBI) issued a framework enhancing transaction limits for small-value digital payments in offline mode. This is a key step in accelerating financial inclusion and digital penetration among the masses.

Key Highlights - RBI Offline Payments Framework

• Offline payments can be done in proximity (face-to-face) mode only, via any channel or instruments such as cards, wallets, mobile devices, etc. 
• Transactions can be made up to a limit of ₹500 per transaction (previously it was ₹200) and an overall limit of ₹2000 until the balance in the account is replenished.  
• The balance replenishment can be done online only with AFA (Additional Factor of Authentication) 

Offline payments are expected to create a level playing field for people from all sections of society while increasing interoperability among multiple stakeholders involved in a payment cycle.  

Presenting OfflinePay 

To facilitate digital adoption in small/remote areas with poor internet connectivity, M2P Fintech worked with HDFC Bank, IDFC Bank, and Crunchfish to develop ‘OfflinePay’, an end-to-end digital payment solution. This innovative platform enables users to make seamless transactions with individuals or merchants even in the absence of an internet connection. It serves as a true lifesaver, especially during moments when online payments encounter technical issues or in regions plagued by inadequate internet or telecom connectivity—particularly in semi-urban and rural areas of India. 

Benefits of OfflinePay

• Enables consumers to make merchant payments digitally in areas with no or limited internet availability  
• Reduces load on the Core Banking System (CBS) in banks 
• Allows both P2P and P2M transactions in a completely secure environment

How does OfflinePay Work? 

OfflinePay is a next-gen prepaid wallet that works in tandem with M2P's acquiring stack to enable offline payments in a secure environment. The on-device prepaid wallet allows initiating a transaction, and the acquiring stack helps in transaction processing once the merchant or user goes online.  

The M2P issuance prepaid wallet system is used to manage user-level wallets, accounts, balances, transactions, etc. For each backend wallet, an on-device wallet is created on the user application, which mirrors the backend issuance wallet. Crunchfish SDK is used for on-device wallet functionality. The on-device wallet is extremely secure, and the integrity of the wallet and transactions is constantly maintained. 

6 Steps to Transact using OfflinePay

Step 1: Install the wallet app & register via SIM binding flow 

• Download and install the wallet app on your device. 
• Open the app and follow the on-screen instructions to register using the SIM binding flow. 
• Provide the necessary details, including your mobile number and any other required information. 
• After activation, you can start using your wallet to make payments. 

Step 2: Load money into the wallet 

• Load money into your wallet using the available payment options provided in the app without requiring an internet connection. 
• Note that the maximum amount you can load is Rs. 2000, as per RBI's Offline Payments Guidelines. 

Step 3: Initiate a payment by generating QR  You have two options to initiate a payment. a) Visit a partner merchant

• Go to any partner merchant that supports offline payments. 
• Request a QR code from the merchant for your payment transaction. 

 b) Pay fellow users

• If the other person also has an offline payment app, you can request a QR code through your respective applications. 
• Once you have requested a QR code, the receiver or beneficiary will generate it on their app. 

The beneficiary enters the desired amount to be accepted, following the RBI's Offline Payments Standards.  

The QR code is now ready for scanning. 

Step 4: Complete the payment 

• Open your wallet app and scan the generated QR code using your phone's camera. 
• Enter your wallet PIN to authorize and complete the transaction. 
• The payment is now successfully made, and a payment receipt/proof QR is generated on your app. 

Step 5: Payment receipt for merchant 

• The payment flow is completed when the merchant scans the payment receipt on their app. 
• Both the user and the merchant now have proof of the offline payment. 

Step 6: Synchronization and payouts 

• When the user or merchant goes online (which could be once a day), the app synchronizes with the issuing and acquiring systems. 
• Merchants will receive payouts for the accepted and synced transactions. 
• Both parties can view their transaction history and balances. 

OfflinePay revolutionizes digital transactions in tiers 3, 4, and 5, as well as remote areas, by enabling smooth transactions of up to 200 INR via our merchant and client applications. We have successfully completed the pilot phase and are now eagerly awaiting further instructions from the RBI to proceed with the next steps. 

Benefits to Banks, Merchants & Consumers 

• Banks can use OfflinePay to declutter the congestion incurred on the core banking system due to higher volumes of UPI payments. This helps banks tap into the rural economy, provide credit, improve engagement with both consumers and merchants and enhance digital payments in small and remote areas. 
• Merchants can use OfflinePay to increase payment acceptance, get instant payment confirmation, reduce the chance of transaction failure, simplify reconciliation and accountability, and increase security via two-way payment verification even when offline.   
• Consumers can use OfflinePay to transact in low or no-network zones/areas and minimize the risk of payment failures and double deductions, access dedicated dispute resolution, and use an app for convenient access. 

Our acquiring stack is the backbone of our merchant acceptance. M2P’s merchant acquiring stack has capabilities such as merchant onboarding and management, payment processing (network/non-network), configuring payment methods, defining commissions/charges, handling settlements, disputes, chargebacks, refunds, and so on. We also support EMI, subventions, extensive billing schemes, payment links, QR, and other features. 

Our next-gen prepaid wallet helps you launch your own customizable program designed specifically for your clients' needs. With a diverse selection of cards to choose from—including gift, corporate, cross-border remittance, travel, fleet, and more—you can ensure seamless payment experiences for all. Unlock the potential of customization and offer your clients an unparalleled level of convenience and satisfaction. 

Enabling Offline P2P & P2M Payments  

Developments in offline payments like Near Field Communication (NFC) and Quick Response (QR) codes are becoming increasingly popular in offline payments and are being used in a variety of settings, including retail stores, public transportation, and vending machines. This is particularly useful in situations where both parties don't have access to the internet or when the internet connection is unreliable. 

Peer-to-peer (P2P) offline digital payments are a type of digital payment that allows two parties to make payments directly to each other without the need for a third party, such as a bank or a credit card company. Our solution, ‘OfflinePay’ allows P2P transactions to be processed and settled once an internet connection is established. Overall, offline P2P transactions are becoming more accessible and convenient for users. Here are some examples of offline P2P digital payments from across the globe.

• UPI123Pay is a new framework introduced by the RBI that allows users to make offline digital payments using feature phones. 
• M-Pesa is a mobile money service that allows users to send and receive money using their mobile phones. M-Pesa is widely used in Kenya and Tanzania. 
• WeChat Pay is a mobile payment service that allows users to make payments using their smartphones. WeChat Pay is widely used in China. 
• PayPal is an online payment service that allows users to send and receive money using their email addresses. PayPal is widely used in the United States and Europe. 

P2M (Peer-to-merchant) offline payments are also done by using a QR code or an NFC tag. Here are some of the advantages of P2M offline payments.

• Convenience: P2M offline payments can be made quickly and easily, even without an internet connection. 
• Security: P2M offline payments are more secure than cash payments, as they do not require the merchant to handle cash.  
• Flexibility: P2M offline payments can be made using a variety of methods, including QR codes, NFC tags, and contactless payments. 

These advancements are making offline digital payments a more viable option for consumers and businesses alike. At the forefront of this evolution is our solution, tailored to embrace these innovations by providing a secure and reliable wallet to store digital funds. We also empower merchants with the convenience of instant credit confirmation through a reverse QR scan. As technology continues to develop, we can expect to see even more advancements in offline payments, which can help promote hassle-free financial inclusion in India. It ensures that an internet connection isn’t a prerequisite for digital transactions. 

Want to leverage the power of offline payments? 

Get in touch with our experts today. 

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