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Q28 (IAS/2018) Economy › Economy Current Affairs › Digital payments ecosystem Official Key

With reference to digital payments, consider the following statements : 1. BHIM app allows the user to transfer money to anyone with a UPI-enabled bank account. 2. While a chip-pin debit card has four factors of authentication, BHIM app has only two factors of authentication. Which of the statements given above is/are correct ?

Result
Your answer: —  ·  Correct: A
Explanation

The correct answer is option A (statement 1 only).

The BHIM app allows users to transfer money to anyone with a UPI-enabled bank account.[1] This makes statement 1 correct. The Unified Payments Interface (UPI), a payment system allowing mobile-enabled money transfers between bank accounts, and the Bharat Interface for Money (BHIM) for a less-cash economy were developed and put to good use, and certainly proved helpful to the citizens.[2]

Statement 2 is incorrect. While the sources mention that a chip-pin debit card has four factors of authentication, the BHIM app will not require any biometric authentication or prior registration with the bank or UPI on the system.[3] However, this does not mean BHIM has only two factors of authentication. BHIM typically uses multiple authentication factors including mobile number verification, UPI PIN, device binding, and potentially other security layers. The claim that BHIM has "only two factors" is therefore inaccurate, making statement 2 incorrect.

Sources
  1. [1] )
  2. [2] Rajiv Ahir. A Brief History of Modern India (2019 ed.). SPECTRUM. > Chapter 39: After Nehru... > Digital India: a Step Forward in e-Governance > p. 778
  3. [3] https://achieversccm.ac.in/wp-content/uploads/2023/01/DR_MAHESH_BHIWANDIKAR.pdf
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PROVENANCE & STUDY PATTERN
Full view
Don’t just practise – reverse-engineer the question. This panel shows where this PYQ came from (books / web), how the examiner broke it into hidden statements, and which nearby micro-concepts you were supposed to learn from it. Treat it like an autopsy of the question: what might have triggered it, which exact lines in the book matter, and what linked ideas you should carry forward to future questions.
Q. With reference to digital payments, consider the following statements : 1. BHIM app allows the user to transfer money to anyone with a U…
At a glance
Origin: Books + Current Affairs Fairness: Low / Borderline fairness Books / CA: 3.3/10 · 3.3/10

Statement 1 is standard current affairs found in basic economy texts (Spectrum/Vivek Singh). Statement 2 is a 'Technical Bluff'—it relies on the definition of Multi-Factor Authentication (MFA). The examiner exaggerated the security of a debit card (claiming 4 factors instead of the standard 2) to create a false contrast with BHIM.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
Digital payments: Does the BHIM app allow a user to transfer money to any UPI-enabled bank account?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Rajiv Ahir. A Brief History of Modern India (2019 ed.). SPECTRUM. > Chapter 39: After Nehru... > Digital India: a Step Forward in e-Governance > p. 778
Presence: 5/5
“The government also intended to enhance and improve connectivity of all villages and rural areas through internet networks. There is no doubt that e-infrastructure, e-participation, and government e-services were put in place and made to work to improve transparency. The Unified Payments Interface (UPI), a payment system allowing mobile-enabled money transfers between bank accounts, and the Bharat Interface for Money (BHIM) for a less-cash economy were developed and put to good use, and certainly proved helpful to the citizens.”
Why this source?
  • Explicitly links UPI as a payment system that allows mobile-enabled money transfers between bank accounts.
  • Mentions BHIM in the same context as UPI and a tool developed for a less-cash economy, implying BHIM uses UPI for transfers.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 10.Oversight of payment and settlement systems > p. 71
Presence: 3/5
“• Unified Payments Interface (UPI)• Aadhar Enabled Payment System (AEPS)• Rupay Cards• National Automatic Clearing House (ACH)• Linking of ATMs across India (some other operators are also involved)• National Electronic Toll collection (It provides an electronic payment facility to customer to make the payments at national, state and city toll plazas by identifying the vehicle uniquely through a FASTag) NPCI is a 'Not for Profit' company where 51% stake is owned by public sector banks.”
Why this source?
  • Lists UPI among the core payment and settlement systems overseen in India, indicating an interoperable national infrastructure for such transfers.
  • By describing UPI as a principal payment system (with NPCI involvement), it supports the notion that apps using UPI can move funds across banks.
Statement 2
Digital payments: Does a chip-and-PIN (EMV) debit card have four factors of authentication?
Origin: Web / Current Affairs Fairness: CA heavy Web-answerable

Web source
Presence: 5/5
"While a chip-pin debit card has four factors of authentication, the ..."
Why this source?
  • Directly states the claim about chip-PIN debit cards having four factors.
  • Is the only passage that explicitly links 'chip-pin debit card' with 'four factors of authentication'.
Web source
Presence: 3/5
"The most common factors for authentication are passwords, PINs, and other knowl-edge-based identifiers. Financial institutions are innovating the use of new factors, such as inherence (such as biomet-rics) or possession (such as using security tokens as time-bound dynamic codes)"
Why this source?
  • Describes common authentication factor types (knowledge, inherence, possession) used in digital payments.
  • Supports the notion that multiple distinct authentication factors (beyond PIN alone) are recognized and used.
Web source
Presence: 2/5
"e-Pramaan provides four factors for user authentication, Password (text, image), One Time Password"
Why this source?
  • Shows an official example (e-Pramaan) where four factors are explicitly provided for user authentication.
  • Demonstrates that 'four-factor' authentication is a recognized configuration in authentication systems (though not specific to chip-and-PIN).

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > Point-of-Sale Machine > p. 196
Strength: 5/5
“A Point-of-Sale (PoS) terminal is a computerized replacement for a cash register which can process Credit and Debit Cards. A customer needs to enter the card PIN to complete the transaction using PoS terminal.”
Why relevant

Says a customer needs to enter the card PIN to complete a PoS transaction — shows PIN (knowledge) is used as an authentication factor with debit cards.

How to extend

A student could combine this with the basic idea that possession of the physical card is a separate factor (something you have) to infer at least two factors are commonly present.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > Smart Card > p. 195
Strength: 3/5
“It contains an electronic chip which is used to store cash. This is most useful when you have to pay for small purchases. For example, bus fares and coffee. No identification, signature or payment authorisation is required for using this card. The exact amount of purchase is deducted from the smart card during payment and is collected by smart card reading machines.”
Why relevant

Describes a smart card that requires no identification, signature or payment authorisation — implicitly identifies signature/ID as possible authentication methods that may or may not be used.

How to extend

A student could use this to reason that signature or ID are alternative authentication factors and check whether EMV implementations include or exclude them.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > Debit Card > p. 194
Strength: 3/5
“It is a plastic payment card that is used instead of cash when making purchases. The money is immediately transferred from the cardholder's bank account when the transaction is performed, unlike credit card. Debit Card is issued against Savings Bank Account as well as Current Bank Account”
Why relevant

Defines a debit card as a payment card that transfers money immediately from the cardholder's bank account — establishes context that debit-card transactions are tied to a cardholder/account and hence depend on authentication.

How to extend

Combine with common security taxonomy (something you have — the card; something you know — PIN) to assess whether additional factors (possession, knowledge, biometrics, inherence, location) are present in EMV.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > E-RUPI: It is different from CBDC, its just a voucher > p. 79
Strength: 2/5
“The following are some of the important features of e-RUPI: • e-RUPI is like a digital voucher and is not a digital/virtual currency• E-RUPI is powered by NPCI's UPI platform.• It is cashless and contactless payment system• It is person specific and purpose specific• It can be redeemed only at certain specific centres• e-RUPI can be issued by Government agencies and Corporates for providing various benefits• e-RUPI is accessible to anyone with a mobile phone even without a bank account and does not require internet access to redeem the e-RUPI• e-RUPI cannot be transferred to other person and cannot be converted into cash• It is aimed at plugging holes in the existing welfare payment disbursement system.”
Why relevant

Notes e-RUPI is 'person specific' and 'accessible to anyone with a mobile phone' — highlights that digital-payment instruments may use person-specific and device-specific restrictions as authentication-like controls.

How to extend

A student could analogize person-specific e-vouchers to biometric or identity-bound factors and then check whether EMV cards support similar 'person-specific' binding (e.g., PIN + card + optional biometric).

Statement 3
Digital payments: Does the BHIM app use only two factors of authentication?
Origin: Weak / unclear Fairness: Borderline / guessy
Indirect textbook clues
Rajiv Ahir. A Brief History of Modern India (2019 ed.). SPECTRUM. > Chapter 39: After Nehru... > Digital India: a Step Forward in e-Governance > p. 778
Strength: 4/5
“The government also intended to enhance and improve connectivity of all villages and rural areas through internet networks. There is no doubt that e-infrastructure, e-participation, and government e-services were put in place and made to work to improve transparency. The Unified Payments Interface (UPI), a payment system allowing mobile-enabled money transfers between bank accounts, and the Bharat Interface for Money (BHIM) for a less-cash economy were developed and put to good use, and certainly proved helpful to the citizens.”
Why relevant

Identifies BHIM as a mobile-enabled payment interface (part of UPI) used to promote a less-cash economy.

How to extend

Knowing BHIM is a mobile app, a student can look up typical mobile-payment authentication models (e.g., device binding + user secret) to form a hypothesis about factors used.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > How will e-Rupee work? > p. 78
Strength: 4/5
“And the requirement of inter-bank settlement would disappear.• Transactions can be both person to person and person to merchant (payments to merchants can be made using QR Codes)• Users will be able to transact with e-rupee through a digital wallet offered by the participating banks and stored on mobile phones and other devices• Just like we withdraw cash from our bank deposits in the same way we can transfer our bank deposits to a CBDC wallet and this transaction is recorded in Core Banking Solution (CBS) of the bank.• But when transactions are made from one CBDC wallet to another CBDC wallet then this transaction is not recorded in the CBS of the bank and remains anonymous.”
Why relevant

Describes transactions via digital wallets stored on mobile phones and other devices, implying the app-wallet-device relationship.

How to extend

From this, a student could infer device possession is likely one authentication element and then check whether BHIM adds PIN/biometric as additional factors.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 21. Payment Banks: > p. 87
Strength: 3/5
“Payment banks will accept only demand deposits i.e., only savings account and current account facility will be available)• The payment banks will be cashing in on mobile technology and applications to cater to the various services they will be offering and with the use of technology they can be cost efficient.• Payment banks will be acting as add-on to the already established banks, rather than their competitors. 22. Small Finance Banks: • In Sept.”
Why relevant

Notes that payment banks and services rely on mobile technology and applications to provide services.

How to extend

A student could use this to reason that mobile-payment apps commonly combine something the device has (phone) with something the user knows (PIN) or is (biometric), then verify BHIM's specific choices.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > Merchant Discount Rate > p. 196
Strength: 3/5
“Merchant Discount Rate (MDR) is the fee paid by a merchant to a bank for accepting payment from their customers via digital means. In other words, it is the fee charged to a merchant for payment processing services on Debit Card and Credit Card transactions. The MDR is expressed in percentage of the transaction amount. Rate of MDR is fixed and revised by RBI time to time. From 1 January 2020, no MDR charge lies on transactions made through RuPay and BHIM UPI platforms. In the Union Budget 2021-22, a ₹1,500 crore fund has been proposed to boost digital payments which will also compensate losses incurred on account of zero MDR regime since 2020.”
Why relevant

Mentions BHIM UPI as a regulated payment platform subject to policy decisions (e.g., MDR changes).

How to extend

A student can extend this to expect regulatory/security standards apply to UPI/BHIM and therefore search regulator (RBI/NPCI) guidance for required authentication factors.

Pattern takeaway: UPSC loves 'Fake Comparisons' in technology. They will take a new government initiative (BHIM) and compare it to legacy tech (Debit Cards) using invented metrics to test your confidence in the basics.
How you should have studied
  1. [THE VERDICT]: Statement 1 is a Sitter (Basic CA). Statement 2 is a Logic Trap (Technical Definition). Source: General Awareness of Banking Security.
  2. [THE CONCEPTUAL TRIGGER]: Digital Payment Ecosystem & NPCI Architecture (Security Protocols).
  3. [THE HORIZONTAL EXPANSION]: Memorize the 3 Factors of Authentication: (1) Knowledge (PIN/Password), (2) Possession (Card/Phone), (3) Inherence (Biometrics). Compare limits/settlement for: NEFT (Batches), RTGS (Real-time, >2L), IMPS (Instant), UPI (Mobile overlay on IMPS).
  4. [THE STRATEGIC METACOGNITION]: Don't just read 'BHIM was launched'. Ask 'How does it verify me?'. If a statement compares two technologies (Card vs App) using specific numbers (4 vs 2), verify if the numbers align with standard industry terms like '2FA' (Two-Factor Authentication).
Concept hooks from this question
📌 Adjacent topic to master
S1
👉 Unified Payments Interface (UPI) — inter-bank mobile transfers
💡 The insight

UPI is the payment system described as enabling mobile money transfers between bank accounts, which is the mechanism BHIM relies on.

High-yield for UPSC: UPI is central to India's digital payments revolution and appears across economy, governance, and technology questions. Understanding UPI's role clarifies interoperability, financial inclusion, and payment infrastructure topics; it enables answers on policy impact, digital finance, and NPCI's role.

📚 Reading List :
  • Rajiv Ahir. A Brief History of Modern India (2019 ed.). SPECTRUM. > Chapter 39: After Nehru... > Digital India: a Step Forward in e-Governance > p. 778
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 10.Oversight of payment and settlement systems > p. 71
🔗 Anchor: "Digital payments: Does the BHIM app allow a user to transfer money to any UPI-en..."
📌 Adjacent topic to master
S1
👉 BHIM app and the cashless/digital payments push
💡 The insight

BHIM is presented alongside UPI as a tool developed to promote a less-cash economy using mobile-enabled transfers.

Important for questions on Digital India and policy instruments: knowing BHIM's purpose and connection to UPI helps explain government efforts to boost cashless transactions and makes it easier to evaluate related schemes and outcomes.

📚 Reading List :
  • Rajiv Ahir. A Brief History of Modern India (2019 ed.). SPECTRUM. > Chapter 39: After Nehru... > Digital India: a Step Forward in e-Governance > p. 778
🔗 Anchor: "Digital payments: Does the BHIM app allow a user to transfer money to any UPI-en..."
📌 Adjacent topic to master
S1
👉 NPCI and national payment infrastructure
💡 The insight

NPCI is referenced in relation to payment systems (UPI, e-RUPI), indicating an institutional backbone enabling interoperable digital payments.

Useful for UPSC candidates to link institutions to policy: NPCI's role connects to topics on payment system governance, standardization, and scale-up of digital payments; mastering this helps answer governance and economy questions about infrastructure and oversight.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 10.Oversight of payment and settlement systems > p. 71
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > E-RUPI: It is different from CBDC, its just a voucher > p. 79
🔗 Anchor: "Digital payments: Does the BHIM app allow a user to transfer money to any UPI-en..."
📌 Adjacent topic to master
S2
👉 Digital payment instruments (cards, UPI, e‑RUPI)
💡 The insight

The statement concerns a card-based payment method; references list debit/credit cards, UPI and e‑RUPI as modern digital payment forms.

High-yield for economy/modern payments topics: helps distinguish instruments by architecture, use-cases and policy relevance (financial inclusion, cashless initiatives). Useful for comparative questions on payment systems and reforms.

📚 Reading List :
  • Exploring Society:India and Beyond ,Social Science-Class VII . NCERT(Revised ed 2025) > Chapter 11: From Barter to Money > New Forms of Money > p. 243
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > Debit Card > p. 194
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > E-RUPI: It is different from CBDC, its just a voucher > p. 79
🔗 Anchor: "Digital payments: Does a chip-and-PIN (EMV) debit card have four factors of auth..."
📌 Adjacent topic to master
S2
👉 Smart card (stored‑value) versus account‑linked debit card
💡 The insight

References describe a smart card that stores cash on the chip and a debit card that debits a bank account—key to understanding different token/authentication models.

Important for questions on transaction flows, security and user experience: explains when on‑card authentication may differ from bank‑verified account transactions. Enables analysis of pros/cons for offline payments and fraud risk.

📚 Reading List :
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > Smart Card > p. 195
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > Debit Card > p. 194
🔗 Anchor: "Digital payments: Does a chip-and-PIN (EMV) debit card have four factors of auth..."
📌 Adjacent topic to master
S2
👉 PIN authentication at Point‑of‑Sale (role of PIN)
💡 The insight

Evidence notes PoS transactions require entry of card PIN for completion, highlighting PIN as an authentication mechanism for debit cards.

Core security concept: knowing that PIN is used at PoS helps answer questions on authentication layers, fraud prevention and transaction authorization. Connects to broader topics on payment security and regulatory measures.

📚 Reading List :
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > Point-of-Sale Machine > p. 196
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > Debit Card > p. 194
🔗 Anchor: "Digital payments: Does a chip-and-PIN (EMV) debit card have four factors of auth..."
📌 Adjacent topic to master
S3
👉 UPI and BHIM as pillars of India's digital payments
💡 The insight

BHIM is explicitly named alongside UPI as part of India's push for mobile-enabled money transfers and a less-cash economy in the references.

High-yield for UPSC: understanding UPI/BHIM is essential for questions on digital payments, financial inclusion, and e‑governance. Links to topics like payment infrastructure, fintech policy, and citizen services; prepares you for policy analysis and governance questions.

📚 Reading List :
  • Rajiv Ahir. A Brief History of Modern India (2019 ed.). SPECTRUM. > Chapter 39: After Nehru... > Digital India: a Step Forward in e-Governance > p. 778
  • Exploring Society:India and Beyond ,Social Science-Class VII . NCERT(Revised ed 2025) > Chapter 11: From Barter to Money > New Forms of Money > p. 243
🔗 Anchor: "Digital payments: Does the BHIM app use only two factors of authentication?"
🌑 The Hidden Trap

UPI Lite & UPI 123PAY. UPI Lite allows small transactions *without* a PIN (sacrificing one factor for speed). UPI 123PAY enables payments on feature phones via IVR/sound waves, removing the 'internet' dependency factor.

⚡ Elimination Cheat Code

The 'Tech-Inflation' Bluff. In the tech world, '2FA' (Two-Factor Authentication) is the standard buzzword. A debit card is physically 'Something you have' + 'Something you know' (PIN) = 2 Factors. The statement claims 'Four Factors'. This is a suspicious exaggeration. If a number defies common technical standards, it is a trap.

🔗 Mains Connection

GS3: Internal Security (Cyber Warfare). The shift from 'Card Present' to 'Card Not Present' (Digital) transactions changes the policing landscape from physical theft to Phishing/Vishing (e.g., Jamtara module).

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SIMILAR QUESTIONS

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