Biometric Authentication: A Game-Changer for Digital Payments

The Rise of Biometric Authentication in Digital Payments

The digital payments industry is on the cusp of a significant transformation with the introduction of biometric authentication and passkeys. These advanced methods are expected to boost transaction success rates by 2-3 percentage points, addressing long-standing issues with one-time passwords (OTPs) and enhancing overall security.

Addressing the OTP Bottleneck

One-time passwords, the traditional second factor of authentication, have been a double-edged sword. While they add an extra layer of security, they are prone to delivery issues, user errors, and technical failures, often leading to transaction declines. According to industry experts, these issues can significantly impact user experience and business outcomes.

Common OTP Issues:

1. Delivery Failures: Network issues and SMS delays can prevent users from receiving their OTPs in time, causing transactions to fail.
2. User Errors: Typing errors or code expiry are frequent problems that can frustrate users and lead to abandoned transactions.
3. Technical Declines: Backend issues, such as server downtimes, can also contribute to OTP-related transaction failures.

The Biometric Solution

Biometric authentication and passkeys offer a robust alternative to OTPs. These methods are tied to the user's device, eliminating the need for SMS delivery and reducing the risk of user errors. Girish Krishnan, director of payments, rewards, and merchant services at Amazon Pay, emphasizes the potential of biometric authentication:

> “We expect biometric-based payment authentication to improve transaction rates. Even for UPI users, inputting a wrong PIN is common, which can be effectively addressed through biometric methods.”

Enhancing Security and User Experience

The security benefits of biometric authentication and passkeys are substantial. Unlike OTPs, which can be intercepted or guessed, biometrics and passkeys are unique to the user and the device, making them virtually impossible to compromise. Bipin Preet Singh, CEO of Mobikwik, highlights the security advantages:

> “The security layer moves from ‘something you have’ to ‘something you are,’ which is far more secure. Biometrics and passkeys are not prone to man-in-the-middle or phishing attacks.”

The Economic Impact

The adoption of biometric authentication and passkeys can also have economic benefits. The cost of sending OTPs, which can be significant for large volumes of transactions, will be drastically reduced. Ramakrishnan Gopalan, vice president and head of products at Visa for India and South Asia, explains:

> “With Visa Payment Passkey, every authentication is signed using a hardware-protected private key paired with a public key registered with Visa. This reduces dependency on telecom networks and renders phishing or credential replay attacks virtually impossible.”

Regulatory Support

The Reserve Bank of India (RBI) has taken steps to promote the adoption of these advanced authentication methods. The Digital Payment Transactions Authentication Directions, 2025, mandate that all digital payments must be verified using at least two factors of authentication, unless exempted. These guidelines aim to enhance security and reduce fraud in domestic and cross-border online payments.

Real-World Impact

Data from the National Payments Corporation of India (NPCI) shows that major banks currently operate at a success rate of 93-95% on UPI. However, business declines and technical issues still contribute to transaction failures. Biometric authentication and passkeys are expected to address these issues, particularly in card transactions, where friction points are common.

Projected Impact:

• Business Declines:** Factors such as lack of funds and dormant accounts will be less impactful with enhanced authentication methods.
• Technical Declines:** Issues like wrong PIN entries and backend problems can be significantly reduced, leading to higher success rates.

The Bottom Line

The shift towards biometric authentication and passkeys represents a significant step forward for the digital payments industry. By addressing the limitations of OTPs and enhancing security, these methods are poised to improve transaction success rates, user experience, and economic efficiency. As regulations and industry trends continue to evolve, the adoption of these advanced technologies will become increasingly widespread, reshaping the landscape of digital payments.