Automatic and recurring mobile phone payments, utility bills, as well as subscription charges for over-the-top (OTT) platforms are likely to be discontinued as of April 1, thanks to a new Reserve rule. Bank of India (RBI). Originally announced in August 2019 and then revised in December, RBI’s new rule required an additional factor of authentication (AFA) for automatic and recurring credit card, debit card, UPI or other prepaid payment instruments (PPI) transactions. .
What does the RBI rule say? What will it mean to you? Here are 10 important facts you need to know about the new rule and how it will affect you.
- In August 2019, RBI notified all scheduled commercial banks, card payment networks, prepaid instrument issuers and the National Payments Corporation of India (NPCI) about the upcoming regime of an additional authentication factor in recurring transactions.
- Starting April 1, 2021, recurring transactions will require additional authentication by the customer (at a minimum, at the time of setting up a new recurring payment) to continue.
- The ruling will apply not only to banks and financial institutions that offer credit cards, debit cards, and other prepaid payment instruments, but also to wallets and mobile payment platforms that allow UPI-based payments.
- Initially, the rule was planned on recurring transactions of up to Rs. 2,000. However, the RBI announced in December 2020 that based on the requests it received from interested parties, it decided to increase this limit to Rs. 5,000. All transactions above Rs. 5,000 will require an additional one-time password (OTP).
- The bank also introduced a deadline of March 31, 2021 to comply, with the RBI circular issued on December 4 that read: “Processing of recurring transactions (domestic or cross-border) using cards / PPI / UPI under arrangements / practices that do not comply with the above. Instructions will not continue beyond March 31, 2021. “
- Once enforced, the new rule will require banks and payment platforms that offer recurring transactions to send a pre-transaction notification to customers at least 24 hours before the first transaction is planned to be debited. The notification mode (SMS, email, etc.) will be chosen by the consumer at the time of registering the e-mandate.
- Such notification will essentially require the consent of the customers, after which the issuer can proceed with the payment. Subsequent recurring transactions can be made without AFA.
- Banks are expected to decline all automatic payments and users will have to perform manual transactions to complete bill payments. Banks have also started notifying customers that they won’t be able to process recurring payments, which means that until institutions work things out and authentication is granted, users may have to manually transact.
- In addition to end consumers, the new rule is likely to affect businesses that often use automatic payments for their recurring charges.
- The central bank has refused to extend the deadline, but the matter is expected to be resolved in the next few weeks. Banks and payment platforms have yet to provide clarity on whether they are ready to operate under the latest regime. Meanwhile, automatic payments through banks and wallets are expected to face some setbacks, at least initially.
An executive of an e-commerce company said: “E-commerce companies are committed to complying with all applicable regulations. However, the industry is not ready to implement the electronic mandate framework issued by RBI. Most banks and networks need a few more months to update their systems to comply. As of April 1, banks will reject client electronic mandate transactions, if the RBI does not grant an additional extension. This will cause a large disruption to recurring transactions and erode customer confidence in digital payments. “
Gadgets 360 has reached out to banks such as HDFC Bank and ICICI Bank, as well as platforms such as Google Pay, Paytm, and MobiKwik to understand their opinion. This story will be updated as companies respond.
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