How new auto-debit rules that require customer consent will impact you

All kinds of recurring or auto-debit payments now require the customer's consent before they are cleared, mandate RBI's new rules. What does this mean and how will it impact you?

The Reserve Bank of India (RBI) has mandated that from October 1, all kinds of recurring or auto-debit payments will require the customer’s consent before they are cleared. What does this mean, and how will it work? Let’s find out.   

What is the change that the RBI has proposed? 

Starting October 1, customers who want a standing instruction in place for recurring payments will have to register for e-mandate at the merchant’s site for the first transaction, with a validity period and maximum amount. 

Also, mandate registration, modification, and deletion will all require additional factor authentication (AFA). 

For subsequent transactions, customers will get a pre-debit notification 24 hours prior, with details of the upcoming e-mandate charge, date, amount, merchant name, and reference number. 

This pre-debit notification will provide a link leading to a customer portal where the customers can view, modify, or cancel the transaction. Under the new process, customers can opt out of the transaction or the mandate via the link provided in the pre-debit notification, which was not the case earlier. Also, any recurring transaction of an amount greater than Rs 5,000 will have to be done through AFA. 

What will consumers have to do? 

According to FAQs issued by ICICI Bank to its customers, customers need to register again for each service, if the standing instruction has not been migrated already, to permit merchants to charge customers’ cards for recurring payments. And, if a merchant has not complied with the new regulatory guideline, customers will have to make direct payments to the merchant to enjoy the services. 

Banks and card issuers have sent communications to their customers saying effective October 1, 2021, processing of e-mandate on cards for recurring transactions requires an AFA to be performed for e-mandate registration, first transaction, modification, or deletion. AFA is required for subsequent recurring transactions subject to certain prescribed conditions. Any recurring transactions (domestic or cross-border) for existing or new e-mandates not compliant with regulatory regulations will be declined.

So, what will happen now to existing recurring payments? How does it work?  

Those recurring payments will have to be registered again with the merchant or the card issuer. The merchant communicates about the payment to the bank through a payment gateway. The bank asks the customer’s permission through a text message. If she doesn’t object, or doesn’t respond, the bank tells the payment gateway all is fine, which then tells the merchant to renew the subscription.

If the customer does not want the payment to go through, she can do so by replying to the bank message. The bank, in that case, doesn’t process the payment, or modifies it according to the customer’s wish. Earlier, this consent power was not with the customers; they would get to know about a transaction only after the payment was made.  

There is an important caveat though: if the recurring payment is of Rs 5,000 or above, the customer will have to authorise it every time with a one-time password (OTP).  

The whole transaction happens through an integrated eco-system where the data lives with the bank and the card issuer. The payment gateway and the merchant get a random set of data, or a token data, which is of no use to scamsters.  

But I have EMIs on home and car loans of more than Rs 5,000. Will I have to feed in an OTP every time?  

Don’t fret. This new system is applicable only where a merchant is involved. Any loan EMI is between you and the bank. Those systems will not be affected. Similarly, if you have registered your utility bill payment directly with a bank, you will not be bothered. 

How do I go about this new system then? 

It may start with a cryptic message from your service provider. For example, the merchant may say, “You will need to verify your ‘card on file’ in order to keep your membership with us.”

That is basically saying, “Re-register with us for auto debit. Because the background process differs from what it was earlier, we are compelled to throw this jargon at you.”

During the first transaction, you register with the merchant or the bank with a standing instruction. Select how long you want the payments to be made, and the maximum amount the merchant can deduct every time. The bank or merchant will also have to provide a facility to view, modify, approve, pause or cancel standing instructions.   

Who will send this notification–- the bank or the subscription platform?  

Every time a payment is made, the bank will send a notification. But it’s also up to the merchant really if it wants to notify you every month about upcoming payments.

  

What happens to my international subscriptions? Why would they listen to RBI mandates? 

They will, eventually, if they want your money. Otherwise, the payment cannot be done. Remember two-factor authentications? The international sites were not compliant till they tied up with local payment gateways to be compliant. In the interim, you can take help from the bank to register a standing instruction for such payments.

What happens to my OTT providers?  

They are also falling in line and facilitating the new transactions. However, there is a minor hitch now because not all card networks or banks are up with the system. The eligible cards and bank lists are displayed on all such sites that do business in India.

Alternatively, you can use Unified Payments Interface (UPI), setting the date of debit, to pay to such sites if your card or bank is not listed. But in a month or two, everyone will be ready with the facility.   

Will the banks/merchants pass on the cost of sending such a notification to consumers?  

According to HDFC Bank FAQs, the bank will not levy any charges to customers. But, if merchants or service providers levy any charges or fees towards the delayed payments, the bank cannot be held responsible for the same.