Offline Payments: The Next Big Push For Digital Transactions

From PoS-based solutions to biometric and more ambitious voice-based solutions, what could help push offline payments?

An employee using a Point-of-Sale terminal at a supermarket in Mumbai, India, on January 28, 2017. (Photographer: Dhiraj Singh/Bloomberg)
An employee using a Point-of-Sale terminal at a supermarket in Mumbai, India, on January 28, 2017. (Photographer: Dhiraj Singh/Bloomberg)

The Reserve Bank of India is pushing payment companies to develop and deploy offline solutions to help overcome network contraints, which reduce the spread of digital transactions particularly in rural areas.

Offline payments are transactions that are either processed without a data connection or where the transaction is recorded offline and processed at a different point of time.

Despite nearly 1.15 billion telecom subscribers and over 650 million mobile broadband users in India as of April 2020, according to data with the telecom regulator, connectivity issues continue to persist. Which is why the banking and payments regulator, along with the National Payments Corporation of India, is pushing companies to develop offline modes of retail payments.

“Absence of, or erratic, internet connectivity, especially in remote areas, is a major impediment for adoption of digital payments. Availability of options to make offline payments, using cards, wallets or mobile devices could boost the adoption of digital payments,” the RBI said in its Statement on Developmental and Regulatory on Aug. 6, while issuing guidelines for payment system operators to launch pilot programs for small value payments through the offline mode.

Why The Push For Offline Transactions

While payment companies have been acquiring offline or physical store merchants and pushing them on to digital payment platforms, through point-of-sale devices, QR codes and other solutions, the RBI is now looking for innovative solutions that don’t require access to data.

“Today, the active base of digital payment users is around 120 to 150 million customers but we need solutions for areas where data or internet connectivity is not available, whether it be in metros or rural areas,”said Naveen Surya, chairman, Fintech Convergence Council and chairman emeritus, Payments Council of India.

The regulator will be looking to see how data is collected, how settlements take place under an offline process and what the customer experience looks like, basis which it could issue guidelines for a solution to all players, Surya said.

The most commonly used digital transaction options beyond urban areas are PoS devices and QR-Codes. But both these depend on internet connectivity and transactions can fail due to network issues.

“This biggest challenge when deploying PoS devices in rural areas is the cost of network connectivity and servicing costs. Through these (offline) solutions we could see the costs coming down for acquisition of merchants further into the hinterland areas,” said Manish Patel, founder and chief executive officer, MSwipe Technologies.

Offline Payments Solutions Available Today

That’s not to say that offline payment options don’t exist today. But they are few in number and limited in adoption.

At present, the NPCI operates 12 payments platform of which only one is an offline payments platform called ‘*99#’, which was launched in November 2012. The platform works on top of the UPI system and is available on all GSM-based feature phones or smartphones

However, according to NPCI data, this platform has not taken-off. It registered over 1 million transactions worth around Rs 180 crore in the last financial year compared to 12.5 billion UPI transactions worth over Rs 2.1 lakh crore during the same period.

There are other offline solutions which have been attempted.

“During our initial years, we led the way in the payments space through innovations around offline purse-in-card and that too at a time when transactions used to happen over low internet environments. Offline purses helped in making transactions faster, typically in less than a second and without the need of connectivity at all time,” said Sanjeev Kumar, chief technology officer at Pine Labs.

Google Pay partnered with Pine Labs in July 2019 to allow merchants to initiate payment requests by punching in a customer’s mobile number on their PoS devices, while Paytm launched a Tap-to-Pay card in April 2018, through which customers could load money onto the card, with or without the internet, and pay merchants by tapping the card on the merchants’ terminal.

While some of the existing solutions work when the customer does not have data, they still require the merchant to have data access.

Potential Solutions That Could Emerge

There is already a fair amount of thinking within the industry on solutions that could emerge.

“Some of the solutions for offline transactions could either involve uploading transaction details at a later stage through batch-processing or real-time processing without network connectivity,” said Mandar Agashe, founder and managing director, Sarvatra Technologies, a solution provider for financial transactions. The most important aspect to keep in mind is risk management on data storage and security concerns, Agashe said.

According to Mohit Gopal, senior vice president and head of strategy, PayU India, since since the RBI has allowed non-payment companies to work on solutions with payment firms, telecom networks could also be roped in as part of these pilots. “There could be connectivity issues in urban areas as well because of network drops, so we are looking to develop solutions for offline delivery payments as well. Developing the technology part of these solutions is not that difficult, so our focus should be on customer education, merchant adoption, supporting local languages, managing data and controlling for fraud,” he said.

Patel of MSwipe said they intend to reach out to the RBI with a solution where the PoS device stores the transaction details, either through a near field communication-based card or card insertion. The transaction would be processed once the device is re-connected to the internet or telecom network.

Another possible solution is the use of encrypted sound waves, where a specific high-frequency sound, which stores all the transaction data, is sent from the mobile phone of a customer to the merchant’s PoS device or phone.

One company working on such a technology is ToneTag, which along with Gupshup and another startups won a contest hosted by the NPCI to a create a feature-phone-based payments solution in May this year.

“We are now working with NPCI to roll these solutions [feature phone payments] out into the market. We're putting the finishing touches on the many different aspects of the solution including software, usability, security and distribution among other aspects,” said Beerud Sheth, chief executive office and co-founder, Gupshup.

He added that they have created payments solution which will transfers transaction details by using SMS or voice, though this is still in a test-phase.

According to Agashe of Sarvatra, with the Aadhaar Enabled Payment System in place, one could also see biometric-based solutions come up. “In some European countries, companies have started experimenting with retina-based payments and also with voice and wearable technology solutions. We could see Indian companies do the same under the pilot scheme,” he said.