Definition
Two-Factor Authentication (Payments)
Two-factor authentication requires two independent proofs of identity — such as a password plus an OTP — to authorise a payment, a long-standing RBI requirement for many transactions.
Two-factor authentication (2FA) strengthens payment security by demanding two distinct factors: something you know (PIN/password), something you have (a device or OTP), or something you are (biometric). RBI has mandated an additional factor of authentication (AFA) for many domestic card and digital transactions.
Common examples are an OTP sent to your phone in addition to card details, or a UPI PIN entered on your device. AFA reduces fraud from stolen card numbers or passwords alone.
Certain low-value or contactless transactions have relaxed AFA up to limits for convenience, balancing security with friction. Recurring e-mandates above thresholds also require AFA at set-up.
Related terms
- Tokenisation of CardsCard tokenisation replaces your actual card number stored by merchants with a unique, device- or merchant-specific token, so real card details are never saved or exposed online.
- ChargebackA chargeback is the reversal of a card or digital payment initiated by the customer's bank, typically for fraud, non-delivery or a disputed transaction, returning funds to the customer.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.