The new rule will apply to all types of auto-debit payments using credit card, debit card, UPI and PPI, including wallets.
The Reserve Bank has decided to extend the timeline for the stakeholders to migrate to the framework for processing of e-mandates on recurring online transactions by six months to September 30, 2021. The deadline was set to expire on March 31.
But, the central bank decided to extend the deadline as the framework is not fully implemented by banks and to prevent any inconvenience to the customers because of lack of preparedness by the system, the RBI said.
"This non-compliance is noted with serious concern and will be dealt with separately. The delay in implementation by some stakeholders has given rise to a situation of possible large-scale customer inconvenience and default," the RBI said, adding any further delay in ensuring complete adherence to the framework beyond the extended timeline will attract stringent supervisory action.
What does the RBI rules on recurring transactions mean to you if you have an auto-debit arrangement? Here’s a simple explainer on this new rule.
What is this issue all about?
Over years, the RBI, which is the banking regulator, has been pushing banks to safeguard third party customer transactions and make sure all payments are secure. Here, the RBI essentially said banks need to inform the customer each time an auto debit is made on third-party merchant websites so that the customer knows what’s happening in his/her bank account. In this context, the RBI issued two circulars, one in August 2019 and the second in December 2020, on new auto-debit rules. The second one was basically a reminder to banks on the original one. What this essentially means is that banks will have to seek customer’s permission or seek additional authentication before executing each transactions involving third-party recurring payments.
Does it apply to all types of payments?
The new rule will apply to all types of auto-debit payments using credit card, debit card, UPI, PPI, including wallets. This will include payments of utility bills, subscription renewals and any other recurring payments involving third-party services providers. For instance, small ticket payments of OTT service platforms such as Netflix, Amazon Prime, Spotify, iTunes, Google, Gaana, postpaid mobile, and insurance payments use their own merchant websites to accept online payments. These may get affected. Also, automatic premium deductions by insurance companies and utility bill payments (gas, electricity) using merchant websites may also get affected by the new RBI rules.
What doesn’t change?
Any payments made through net banking channels will remain unaffected. As mentioned above, the problem is only with third-party merchant websites. This means, your regular EMI payments on home loans, auto loans or mobile and gas bill payments using bank websites will not get affected. The issue is only with direct recurring payments on third-party merchant websites.
But why did the RBI do this?
As indicated above, the RBI fears that auto-debit transactions on third-party merchant websites are susceptible to fraudsters. Hence, the regulator wants banks to have a control over the auto-debit payments on merchant sites and customers to know about the payments each time. Typically at the time of making a third-party payment using a credit card or debit card, the third-party merchants ask the customer if he/ she would like to make a standing instruction for automatic deductions. Many a times, customers opt for this. The RBI thinks these transactions are beyond the scrutiny of banks.
Okay, what is the impact on customers?
From October 1, for recurring payments through third-party merchant websites, the bank needs to send a communication to the customer five days in advance and at least 24 hours before the payment date intimating the customer about the scheduled payment and asking if he/she wants to opt out or part-pay the amount. If the customer wants to opt out of the standing instruction arrangement, he/she can do that. Customers will have to do a one-time registration for third party payments. Else, customers will have to go to the bank websites and make payments directly.
What about high-value transactions?
For auto-debits above Rs 5000, an additional one-time password is required. This is an additional security measure.
Will this change lead to disruptions in auto-payments in October?
Some of your auto-debit payments on third party sites such as Netflix, Amazon monthly renewal or utility bill payments on merchant websites may not happen automatically following the RBI’s new rule. But, you can make the payments through net banking channels.
According to an FAQ issued by HDFC Bank, "As customers, one permits various merchants to auto-charge our credit card / debit card on a recurring basis (monthly / quarterly / annually) for various services such as Netflix, Amazon Prime, Spotify, iTunes, Google, Gaana, Postpaid mobile, Insurance payments, etc. These recurring payments will not be allowed from 1st October 2021 onwards, without meeting new conditions prescribed by RBI."
What is the banks’ response?
Banks are not happy with the RBI rule for two reasons. One, for this to happen, merchant sites will have to first share the payment information with banks. Merchant sites aren’t comfortable sharing payment information to banks as they fear competition will come to know about subscriber details. Second, informing the customer every month about an auto debit for which he/she has already given consent is unnecessary, banks feel. But, the RBI rules are final. So, banks are in talks with payment service providers such as Billdesk (or/and others) to work out an alternative platform so that Billdesk will undertake the task of informing the customers about auto debit every month and pass confirmation to the banks.
How prepared are banks for this transition?
According to HDFC Bank, the new conditions prescribed by the RBI require a cohesive effort by all stake-holders including Card Issuing banks, Merchant Acquiring Banks, Card Networks and Merchants. All constituents have to complete development, integration and deployment of a COMMON platform, which is fully compliant with the RBI guidelines. Such a common industry-wide platform has been recently developed and HDFC Bank has completed its internal development and integration. "We are now working jointly with merchants for making this live for customers at the earliest," the bank said.
Will this mean that you have to pay an additional charge on auto-debit transactions?
That is a possibility. According to banking industry sources, banks may initially absorb the cost of facilitating or to operationalise an additional platform such as Billdesk to do this but may eventually charge the customer. There is no certainty on this yet.
Okay, so what you should do starting October to make sure your third party recurring payments happen?
The best way is to go to your bank website and make the payment from there. If there is no facility for that with your third-party service provider, write to your bank on how to go about the monthly payment, said bankers.
According to HDFC Bank FAQ, there are three ways in which you may continue to enjoy uninterrupted service:
One, re-register for each service such as Google, Netflix, Gaana etc (provided they have integrated the new RBI prescribed system), giving permission to the merchant / service provider to charge your card for recurring payments. This is a one-time registration which has to be done for each service, on or after September 30, 2021.
Two, in the interim, until they are not yet live on the new RBI compliant platform, the merchant / service provider may initiate recurring transaction payment requests, either in-app or on-website, or through links, etc., which would have to be approved by you with OTP / other AFA (Alternate Factor of Authentication). Direct charge to card without OTP / other AFA would not be allowed. Alternatively, you may go to the merchant site and initiate a payment yourself, if such an option is available.
Three, alternatively, you can use the bank's Netbanking portal to register for recurring payments under categories like Electricity / Water / Gas / LPG / Landline telephone / Postpaid mobile / DTH / Broadband / Insurance, etc.