How new Auto Debit Rules will impact you and your payments

By: |
October 01, 2021 7:11 PM

From October 1, all recurring payments made using third-party applications will be preceded by a notification to the customer at least one day prior informing him/her of the scheduled payment.

Card payments, Auto-debit payment rules, new Auto-debit payment rules, debit cards, credit cards, OTP, RBI, SIP, EMIIndustry experts say the new regulation will safeguard customers' interests in terms of data security and the prevention of fraud.

According to RBI’s new norms, banks need to notify customers of any due recurring transactions, and they will execute them only post their approval. Banks will share one-time passwords (OTPs) for invoices over Rs 5,000. Non-compliant recurring transactions on one’s credit or debit card will be declined by banks beginning October 1, 2021. However, those transacting on banking platforms remain unaffected.

Anand Kumar Bajaj, CEO, PayNearby, says, “It will impact consumer convenience to some extent especially in the case of in-app payments which are meant to power seamless transactions. However, users will eventually realize that the new regulation is for their benefit as it will enhance the security of transactions done on debit/credit cards.”

Earlier, consumers used to complete their transactions at multiple consumption points for e-commerce or food ordering services. But now with the new regulations, effective October 1, payment transactions pertaining to recurring payments using cards will have to be routed through the issuer Bank. Simply put, customers will now be required to re-register each of their payment instruments, may it be a debit card, credit card or UPI for service under the recurring mandate. Post-re-registration, the first transaction will have to be executed via additional factor authentication (AFA) by approving the auto-debit request beforehand. Note that, while consecutive trades, for value up to Rs 5000, can be executed seamlessly without AFA, transactions of value above Rs 5000, will require authorising them with AFA every time.

Industry experts say the new regulation will safeguard customers’ interests in terms of data security and the prevention of fraud. Mandhar Agashe, CEO, Sarvatra Technologies says, “The new regulations will only impact the auto-debit mandates that involve recurring payments such as one’s subscription with OTT platforms, utility payment service providers, insurance premium, etc. Some of the banks are still in the process of setting up the e-mandate, its nationwide activation might take some more time.”

How will it impact payments?

Industry experts say, this move will safeguard one’s data and avoid digital frauds, especially in the case of gullible customers, who often fall prey to data breaches. All automated payments need to be reviewed and registered with their respective banks by offering standing instructions to avoid transaction failure.

Bajaj of PayNearby says, “The directive will empower card users to manage and administer their cyclical transactions. However, one need not have to worry about recurring transactions under UPI Autopay and e-NACH as the new guidelines will not impact these transactions in any way.”

He further adds, “Customers should note that the directive will only impact the standing instructions on cards and not on standing instructions given to banks by customers. Therefore, EMIs and SIPs payments are not likely to face turbulence.”

Objectives behind the move

With this development, experts say the objective is to give more control in the hands of customers over the auto-mandate facility. As the customer can now determine and set the amount, velocity etc. of recurring mandates. One can also annul a particular service whenever required through web-based solutions offered by the banks.

With the aim to make online transactions more secure and safeguard the interest of customers, the Reserve Bank of India, Bajaj says, has adopted the following two-factor authentication. “The Bank is concerned that auto-debit transactions on third-party apps and websites are susceptible to fraud. Many times, cash outflows are executed even when the customer has opted out. To a greater degree, the RBI is enforcing two-factor authentication (AFA) to boost customer safety,” he adds.

How will it impact end consumers?

From October 1, all recurring payments made using third-party applications will be preceded by a notification to the customer at least one day prior informing him/her of the scheduled payment. And, on the due date, authentication mode will be activated, and the consumer will make the necessary payments accordingly.

Agashe says, “If you use a third-party app to auto-pay your invoices, you must re-register before the period ends. However, by then, their online platform should also be in compliance with the new RBI guidelines. As a conclusion, you have the choice of using the new auto-debit service or making payments directly on their website.”

He further adds, “The only thing the consumers need to be mindful about is that all their recurring payments are registered with their respective banks that comply with the new regulations.”

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