New Recurring Payment Norms: How will it impact your auto-debits?

October 1, 2021 Mutual Fund

Have you recently received any message or an email notification from your bank regarding the new recurring payment rule mandated by the Reserve Bank of India (RBI)? Whatever may be your answer to this question, you are probably not sure what the new norms are and how it will impact your auto-debit transactions. So, here’s everything you need to know about the new recurring payment norms mandated by the government, starting today i.e. 1st October 2021!

The Key Points to the New Recurring Payment Norms:

• Auto payments registered with your debit cards or credit cards will stop working from today, i.e. 1st October 2021, unless you authenticate the debit transactions.

• This applies to all third-party payment modes, such as debit cards, credit cards, UPI, and Wallet transactions.

• Additional Factor Authentication (AFA) is taken as one of the safety and security measures by the RBI for 'card-not-present' transactions.

• The new norms will not interrupt any standing instructions given to your bank account.

So, here’s what you need to know about the new recurring payment norms:

What are Recurring Payments?

The recurring or auto-payment facilities offered by debit and credit cards, Unified Payment Interface (UPI), and Wallets or Prepaid Payment Instruments (PPI) has now become a part of our life. It helps us automatically pay our bills by a chosen payment method with a single authorisation done at the initial registration stage. The best example is how your Netflix subscription gets automatically renewed every month if it is linked to your credit card with an auto-payment instruction. Other examples can be any automatic recurring payments, such as DTH, OTT, utility bills, or recharge of prepaid phone numbers done through the above mentioned third-party payment methods.

What are the New Recurring Payment norms laid down by the RBI?

The Reserve Bank of India (RBI) has mandated an Additional Factor Authentication (AFA) for any debits done through auto-payments starting today (1st October 2021). In its notification, the RBI has stated that “A cardholder desirous of opting for an e-mandate facility on the card shall undertake a one-time registration process, with AFA validation by the user. An e-mandate on the card for recurring transactions shall be registered only after successful AFA validation, in addition to the normal process required by the issuer.”

How will the New Recurring Payment norms work?

1. According to the norms laid down by the RBI, from today onwards, the banks will have to inform the customers about the due recurring transactions at least 24 hours in advance of the actual debit.

2. The customers will receive pre-debit notifications through an email or SMS. They have an option to choose the mode to authenticate the recurring debit transaction via email or SMS.

3. The transaction will fail, if the customer does not approve the transaction or reply to the notification.

4. A customer can choose the maximum amount for a particular standing instruction. And, if the amount of that standing instruction is more than the limit set by the customer, he/she will have to authenticate the transaction with additional factor authentication.

5. Additionally, customers are required to authenticate the auto-payment transaction above Rs 5,000 with a One-Time-Password (OTP).

To whom will the new recurring norms impact?

The new recurring norms will impact especially those who use auto-payment through debit or credit cards, Wallets, UPI, PPIs, etc., to avail services that require recurring payments.

Can you make changes to the e-mandate?

Yes, the customers can modify the e-mandate with Additional Factor Authentication. Moreover, a customer can also delete the registered e-mandate with Additional Factor Authentication.

What if you do not want to make any payments for a particular service?

When you get a SMS/email notification for your authentication, you will also get a link to opt-out of the particular transaction. However, if you opt-out, you will not get any notifications for that particular standing instruction, and the future transactions will fail automatically.

What will happen to your SIPs and EMIs?

These new norms are applicable only for third-party recurring payment modes. Therefore, you do not have to worry about the standing instructions given to your bank account. For example, your mutual fund SIPs, bank recurring deposits, and EMIs will not get interrupted by this change. These are auto-payment standing instructions on your bank account, and no third-party payment modes, such as debit card, credit card, UPI, Wallet, etc., are involved in these transactions.

Are the banks ready to comply with the new recurring payment norms?

The RBI had instructed the banks to upgrade their systems to comply with the new norms by 31st March 2021. However, the Indian Banks’ Association (IBA) had requested the RBI to extend the time till 1st October 2021 because the banks needed more time to integrate with the common e-mandate platform.

While most leading private sector banks have recently confirmed that they are ready to comply with the RBI’s regulations and have already started informing their customers about the new norms, many other banks are still struggling to upgrade their systems.

Many banks are still working with payment aggregators like BillDesk or RazorPay to integrate with a common e-mandate platform for ensuring compliance.

What should you do if your bank is not compliant with the new recurring norms?

The customers whose banks have not complied with the new recurring norms may have to manually make all the payments, as the auto-payment without authentication will completely stop from today onwards.

Will the services get disrupted?

Leading companies like Google and YouTube have informed their customers that their premium services may get disrupted due to the non-compliance of new norms by the banks. Also, some lenders have asked their customers to pay the initial EMIs manually (if the standing instruction is given through debit cards) as the new system might face some snags or complications at the initial stage.

What will happen if you fail to authenticate the transaction?

In case, the recurring payment transaction fails for any reason or the customer is unable to authenticate the transaction, a customer can visit the merchant’s official website or mobile app and make the payment through any mode.

Are there any charges for an e-mandate registration?

No, the bank or RBI do not charge anything to its customers for the e-mandate registration.

How it will be beneficial for you?

The customers need to understand that these new recurring payment norms are laid down for the safety and security of their ‘card-not-present’ transactions. For example, people often subscribe for various services during the free trial or discounted period and forget to unsubscribe later, which results in paying unnecessary monthly charges for the services they do not use. Furthermore, sometimes non-tech savvy people unknowingly subscribe to various services and realise it only after several months. The new recurring norms will help avoid such unpleasant situations.

This article first appeared on PersonalFN here