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The National Payments Corporation of India (NPCI) is developing an offline UPI payment system that will enable Near Field Communication (NFC)-based tap-and-pay transactions without active internet connectivity.

About the Proposed Offline UPI System

The proposed system is an advanced contactless payment mechanism built on the existing Unified Payments Interface (UPI) framework. It enables users to make digital payments at merchant Point-of-Sale (PoS) terminals even when both the customer's smartphone and the merchant's terminal are offline.

The system has been developed by the National Payments Corporation of India (NPCI) with the objective of reducing payment failures caused by poor or absent internet connectivity and expanding UPI usage in remote and low-connectivity areas.

How Does the System Work?

The system operates in three stages:

• Pre-Authorisation: While connected to the internet, the user's bank authorises and stores a set of cryptographic payment tokens or a prepaid balance on the smartphone.
• Offline Payment: The user taps the smartphone on an NFC-enabled PoS terminal, where payment credentials are exchanged through short-range NFC communication without internet access.
• Deferred Settlement: The transaction is stored locally on both devices and is transmitted to NPCI for final bank-to-bank settlement once either device reconnects to the internet.

Key Features

• Enables offline NFC-based tap-and-pay transactions.
• Works even when both customer and merchant are offline.
• Uses cryptographic tokenisation instead of real-time bank balance verification.
• Supports transactions of up to ?2,000.
• Follows a store-and-forward model where settlement occurs after internet connectivity is restored.
• Designed primarily for merchant PoS payments.

Advantages

• Reduces payment failures in areas with poor or no internet connectivity.
• Expands digital payments to remote rural areas, underground metro stations, in-flight services, and locations with network outages.
• Enhances the reliability and resilience of India's digital payment ecosystem.
• Promotes greater financial inclusion and supports the Digital India initiative.

Limitations

• Transaction limit is capped at ?2,000.
• Requires NFC-enabled smartphones and NFC-enabled PoS terminals, limiting usage on older devices.
• Final settlement occurs only after internet connectivity is restored, requiring robust reconciliation mechanisms to manage delayed settlements.

About NPCI

• The National Payments Corporation of India (NPCI) is an umbrella organisation for retail payment systems in India.
• It was established in 2008 under the guidance of the Reserve Bank of India (RBI) and the Indian Banks' Association (IBA).
• NPCI operates key payment platforms including UPI, RuPay, IMPS, BHIM, NACH, AePS, FASTag, and UPI Lite.