Payments made automatically from your account for mobile, utility, and other bills as well as subscription charges for over-the-top (OTT) platforms are likely to be disrupted from April 1 because of a new Reserve Bank of India (RBI) rule. The rule, which requires an additional factor of authentication (AFA) for recurring online transactions using credit cards, debit cards, UPI, or other prepaid payment instruments (PPIs), could affect millions of customers.
What does the RBI rule say? What will it mean for you? Here are 10 important facts you need to know about the new rule and how it will affect you.
- From April 1, 2021, recurring online transactions will require an additional authentication by the customer (at minimum, at the time of setting up a new recurring payment) to proceed.
- Initially, the rule was planned on recurring transactions worth up to Rs. 2,000. The RBI, however, announced in December 2020 that on the basis of requests from stakeholders, the limit was raised up to Rs. 5,000. Transactions above that cut-off will require an additional one-time password (OTP).
- RBI in August 2019 notified all scheduled commercial banks, card payment networks, prepaid instrument issuers, and the National Payments Corporation of India (NPCI) about the big change for recurring online transactions.
- The ruling is set to be applied on not just banks and financial institutions offering credit cards, debit cards, and other prepaid payment instruments, but also on mobile payment wallets and platforms enabling UPI-based payments.
- The bank also introduced a March 31, 2021 deadline to comply, with the RBI circular issued on December 4 reading, "Processing of recurring transactions (domestic or cross-border) using cards / PPIs / UPI under arrangements / practices not compliant with the aforesaid instructions shall not be continued beyond March 31, 2021."
- Banks and payment platforms offering recurring transactions will have to send a notification to customers at least 24 hours before the first transaction is debited. The mode of notification (SMS, email, etc.) will be chosen by the consumer at the time of registering the e-mandate for recurring payments.
- That notification will essentially need the customer's consent — upon which the issuer will be able to proceed with the payment. Subsequent recurring transactions may take place without that extra step.
- Banks are expected to decline these automatic payments and users will have to make manual transactions to complete bill payments. Banks have also started notifying customers that they will not be able to process recurring payments, meaning until things are sorted out by institutions and authentication is granted, users may have to manually make transactions.
- In addition to end consumers, the new rule is likely to impact enterprises that often use auto-payments for their recurring charges. Third-party payment processors have also declined to share customer information with banks due to contractual agreements, which could add to the problem.
- The central bank has refused to extend the deadline but the matter is expected to be resolved in the coming weeks. Banks and payments platforms are yet to provide clarity on whether they're ready to operate under the latest regime. Meanwhile, it is expected that automatic payments through banks and wallets may face some hiccups — at least initially.
An executive of an e-commerce company said, “E-commerce companies are committed to adhere to all applicable regulations. However, industry is not prepared to implement the e-mandate framework issued by RBI. Most banks and networks need a few more months to upgrade their systems to comply. Starting April 1, customer e-mandate transactions will be declined by banks, if further extension is not granted by RBI. This will cause major disruption to recurring transactions and will erode customer trust in digital payments.”
Gadgets 360 has reached out to banks including HDFC Bank and ICICI Bank as well as platforms such as Google Pay, Paytm, and MobiKwik to understand their take. This story will be updated as and when the companies respond.
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