Decoded: How offline UPI can keep digital payments running without internet

NPCI is developing an offline UPI system that could enable NFC-based merchant payments without internet connectivity, using secure tokens and deferred settlement

Despite processing billions of transactions every month, Unified Payments Interface (UPI) continues to rely on real-time internet access and bank authentication, leaving digital payments vulnerable in areas with weak or no network coverage.

 

The National Payments Corporation of India (NPCI) is now looking to address this gap.

The payments body is developing an offline UPI system that could allow users to make tap-and-pay transactions even when both the customer's smartphone and the merchant's point-of-sale (PoS) terminal are offline.

 

Instead of relying on instant bank authentication, the proposed system is expected to use Near Field Communication (NFC), secure offline token storage and deferred settlement once connectivity is restored.

 

If introduced, the feature could extend UPI beyond always-connected environments, complementing UPI Lite and UPI Lite X while enabling digital payments in low-connectivity areas.

How the proposed offline UPI system could work

Unlike conventional UPI payments, which require a live internet connection to authenticate every transaction with banks, the proposed offline system is designed to work without real-time connectivity.

 

The payment process would begin with a limited amount of payment value being stored securely on a compatible smartphone before the user goes offline. When making a purchase, the user would tap the phone against an NFC-enabled PoS terminal. Payment credentials would then be exchanged locally through NFC, removing the need for mobile data or Wi-Fi during the transaction.

 

Both the customer's device and the merchant terminal would temporarily record the payment.

Once either device reconnects to the internet, the transaction information would be transmitted to the banking network for settlement.

 

This process, known as deferred settlement, allows a payment to be initiated offline while ensuring that the funds are transferred only after connectivity returns.

 

According to a Deccan Herald report, NPCI is evaluating this approach for transactions of up to Rs 2,000, with potential use cases including underground metro stations, flights and areas where mobile connectivity is intermittent.

Technologies behind offline UPI

The proposed system is expected to rely on three technologies: NFC, offline tokenisation and deferred settlement.

NFC enables tap-and-pay transactions

Near Field Communication is a short-range wireless technology that allows two devices to exchange information when placed a few centimetres apart. It is already widely used for contactless debit and credit card payments, as well as smartphone wallets.

 

In the proposed offline UPI system, NFC would act as the communication layer between the customer's smartphone and the merchant's terminal. Since the information would be exchanged directly between the two devices, the transaction would not require internet connectivity at the time of payment.

 

The process would be similar to contactless card payments. However, instead of relying on card networks such as Visa or Mastercard, the transaction would eventually be settled through India's UPI infrastructure.

Offline tokenisation replaces live bank authentication

Traditional UPI payments verify the payer's bank balance and authenticate a transaction instantly through the banking system. This becomes impossible when there is no internet connection.

To address the problem, NPCI is expected to use offline tokenisation, according to reports from Moneycontrol and Gizbot.

 

Instead of contacting the bank for every transaction, the smartphone would store a limited number of secure payment tokens or a prepaid payment value while it is still online. These tokens would represent authorised payment capacity without exposing actual bank account credentials.

 

During an offline payment, the token would be transferred securely to complete the transaction, reducing the need for real-time authentication. Since only pre-authorised value would be stored on the device, the financial risk would remain limited if the phone were lost or compromised. 

Deferred settlement completes the payment later

Another key difference lies in when the payment is settled. The current UPI system follows an authorise-and-settle-immediately model, under which every transaction is approved by banks in real time before the money is transferred.

 

The proposed offline system would instead follow a store-and-forward approach. The merchant would accept the payment based on the offline token, while the actual settlement would take place after connectivity is restored.

 

Deferred settlement is already used in several transport payment systems worldwide, allowing services to continue during temporary network outages.

 

According to Deccan Herald, NPCI is developing safeguards to ensure that delayed settlements remain secure and duplicate claims are prevented.

Why NPCI is building offline UPI

India's digital payments ecosystem has expanded rapidly, but unreliable network connectivity continues to limit its use in certain environments.

 

As reported by Business Standard earlier, the proposed system is being designed mainly for situations where connectivity cannot be guaranteed, rather than as a replacement for conventional online UPI. Potential use cases include metro stations, flights, remote areas and retail outlets where mobile networks may be weak or unavailable.

 

The system could also help merchants continue accepting payments during temporary internet outages.

How offline UPI differs from existing UPI services

At first glance, NPCI's proposed offline UPI system may appear similar to existing services such as UPI Lite and UPI Lite X. However, the underlying technology and intended use cases are different.

A conventional UPI payment depends on real-time communication between the customer's bank, the merchant's bank and the UPI network. If either the customer or the merchant loses internet connectivity, the transaction cannot be authorised.

 

UPI Lite, launched by NPCI in 2022, addresses a different issue. It allows users to make small-value transactions by maintaining a prepaid balance on the device. While payments do not require repeated bank authentication, the merchant still needs connectivity to receive the transaction. UPI Lite therefore reduces dependence on bank servers but does not fully remove dependence on the network.

 

UPI Lite X takes the system a step further by enabling offline payments between compatible devices using NFC. However, it is mainly a device-to-device, or person-to-person, payment system. Its adoption remains limited because both users need compatible devices and supported payment applications.

 

The proposed offline UPI system is aimed primarily at merchant payments. It could allow even the merchant's PoS terminal to remain offline during the transaction, making it suitable for shops, transport systems and locations with unreliable connectivity.

How NPCI could prevent fraud

An offline payment system creates a challenge that does not exist to the same extent in online UPI: preventing the same payment value from being spent more than once before settlement. This is known as double spending and is one of the biggest technical challenges in any offline digital payment system.

 

According to reports, NPCI is expected to use a combination of secure hardware, cryptographic tokens and transaction counters stored on the device. Instead of exposing bank account information, each payment would use a pre-authorised token generated while the device is online.

 

Once a token has been used, it would become invalid and could not be reused for another payment.

The merchant terminal would also maintain a local transaction log until connectivity is restored. During settlement, NPCI's systems would reconcile records from both the customer and merchant devices before completing the transaction.

 

Since only a limited prepaid value would be available offline, even a compromised device would expose only a small amount of money rather than providing unrestricted access to the user's bank account. 

UPI’s scale highlights the need for offline payments

The proposed offline UPI feature comes as the payments network operates at an unprecedented scale. According to the Press Information Bureau, citing NPCI data, UPI processed 24,161.69 crore transactions worth Rs 314 lakh crore in FY26.

 

Transaction volume increased 30 per cent year-on-year, while transaction value rose 20.6 per cent.

UPI now accounts for 85 per cent of India's digital payment volumes, processing an average of 66 crore transactions worth about Rs 0.86 lakh crore every day.

 

Despite this growth, UPI payments continue to rely on real-time internet connectivity and bank authentication. NPCI's proposed offline UPI system aims to bridge this gap by extending digital payments to places where connectivity remains unreliable.