India’s e-commerce ecosystem is operating at an unprecedented scale, driven by widespread smartphone adoption and affordable, high-penetration internet access. Today, the market serves hundreds of millions of digital shoppers and processes billions of online transactions each year across retail, travel, food delivery, and digital services.
Yet, despite this extraordinary growth, the country continues to rely heavily on SMS-based one-time passwords (OTPs). This ageing mechanism is increasingly exposed to spoofing, phishing, device takeovers, malware injections, SIM-swap attacks and simple delivery delays, issues that are particularly common in dense urban centers characterised by cross-device, cross-network usage.
In fact, a Ministry of Finance data reveals that Indians lost INR 4,245 crore across 24 lakh digital fraud cases between April and January of financial year 2025 (FY25), while the Reserve Bank of India (RBI) figures show fraud value surged to INR 36,013 crore in FY 2024- 25, up from INR 12,230 crore the previous year.
With criminals exploiting vulnerabilities in a fast-expanding cashless ecosystem, India’s authentication backbone needs structural transformation.
A turning point for authentication
Urban user journeys today are smartphone-first, high frequency, and expectation-driven. Authentication must match this while bridging widening fraud gaps. Static OTPs, however, introduce friction without intelligence.
Traditional OTP frameworks assume that every transaction carries equal risk, a premise increasingly disproven by India’s threat landscape. Most fraudulent incidents are now driven by social engineering, device compromise, remote access scams and behavioural manipulation, where users are deceived into voluntarily sharing OTPs.
Further, OTPs offer no visibility into behavioural anomalies such as unusual timing, inconsistent location patterns, suspicious device histories or abnormal user interactions. They also cannot detect deeper risks arising from SIM swaps, malware injections, or remote screen-sharing tools that criminals routinely deploy.
The RBI’s Authentication Mechanisms for Digital Payment Transactions Directions 2025 represent that regulators recognise the need for more fluid, robust , and user-centric payment experiences.
This framework formally encourages banks to shift from OTP-only user journeys to multiple non-OTP factors such as device binding, passkeys, biometrics and other stronger mechanisms.
With full compliance required by 1 April 2026, these guidelines mark a serious attempt to fundamentally redesign India’s payment ecosystem enabling contextual and risk-based decisioning.
The operational case for dynamic multi-factor authentication
Dynamic and risk-based multi-factor authentication (MFA) addresses these vulnerabilities by introducing intelligence, context and cryptographic certainty into the verification process. Such frameworks enable banks to:
- Bind user identities to trusted devices and replace shared secrets with device-based cryptographic keys.
- Trigger step-up authentication only when anomalies are detected, significantly reducing unnecessary friction.
- Remove OTP dependency for low-risk, repeat or high-frequency transactions, improving user satisfaction.
- Enhance success rates by eliminating SMS delivery failures, especially in network-congested urban regions.
- Close security gaps across card payments, UPI journeys and internet banking channels through unified controls.
By aligning authentication with real-time risk, banks can significantly reduce exposure to the fraud vectors that dominated FY25 and fortify trust across the rapidly expanding digital payment ecosystem.
What needs building now
India’s digital economy is increasingly shaped by smartphone-native millennials and Gen Z users who demand seamless, secure, and instant experiences. Yet many banks still operate siloed authentication flows across cards, , net banking, and merchant payments; creating operational inefficiencies, fragmented user experiences, and inconsistent security postures.
A post-OTP world requires unified, centralised authentication platforms such as G+D’s Convego Auth-U that orchestrate biometrics, device intelligence, behavioural analytics, passkeys and cryptographic credentials through a single decisioning layer. With such platforms, banks can:
- Deliver frictionless experience and reduces fraud losses and operational overhead through intelligence-driven automation.
- Ensure consistent authorisation logic across multiple channels and form factors.
- Meet the RBI’s April 2026 mandate without resorting to piecemeal or duplicative solutions.
- Strengthen customer trust in an increasingly competitive digital banking landscape.
Banks that modernise early will not only achieve compliance but also gain a strategic advantage by offering superior, secure, and future-ready customer journeys.
Authentication to match digital ambition
India has entered a new era of digital payments at extraordinary scale, but with it comes heightened risk.
While OTPs proved effective in the early years of digital adoption, their limitations now hinder trust, speed and security in an ecosystem that processes billions of transactions each month. The RBI’s new framework provides a clear and flexible roadmap for stronger, smarter, and more user-centric authentication.
As fraud rises and consumer expectations accelerate, dynamic, multi-factor, and risk-based authentication is essential. Banks that act now will be best positioned to safeguard trust, minimise fraud, and lead India’s next phase of secure digital innovation.
