New recurring payment norms from Oct 1: Banks, card issuers in a tizzy

Customers are being notified about changes, and alternative methods of payments

Sensing the Reserve Bank of India’s (RBI’s) firm resolve to stick to its norms on recurring payments, banks, payment aggregators, and merchants are scrambling to meet the October 1 deadline.

Racing against time, these entities have now started notifying their customers about the changes, with alternative ways of payments. In some cases, recurring payment plans have been suspended on a “temporary” basis. Merchants, too, have sounded off their customers, indirectly blaming banks for the inconvenience.

Tech giant Google has sent emails to subscribers of its products such as YouTube Premium, saying, “If your card issuer is not compliant with the RBI regulations and cannot be used for recurring monthly payments, please try again with a supported card.”  

Google has given a list of cards that are supporting recurring payments in accordance with the RBI guidelines. These include Visa cards issued by HDFC Bank, Kotak Mahindra Bank, ICICI Bank, and Bank of Baroda.

Industry sources said other card issuers and banks had pulled up their socks too. “Given the past few instances where the RBI has come down heavily on banks for non-compliance, no bank now dares to draw the RBI's ire,” said a senior banking source, requesting anonymity.  

Sources said the central bank had suggested the ‘card on file tokenisation’ (CoFT) method to comply with its norms. CoFT refers to the practice where the card issuer network or bank can keep the customer details and not the payment gateways or the merchant. In this method, a customer doesn’t have to type in their card details, which would be filled in by the card issuer, and not the merchant site.  

“You may need to verify your card on file in order to keep your membership with us. This is due to an RBI eMandate regarding recurring payments, which will go into effect September 30, 2021. You will only need to do this once,” Google has said, referring to the CoFT method.  

Considering most banks are yet to be compliant with the guidelines, their users will have to take the pre-payment route, or do manual payments in the interim.

Merchants such as streaming platforms services (Netflix, Amazon Prime, etc) are currently live with HDFC Bank for merchant standing instructions. Amazon did not respond to Business Standard queries till the time of going to press.

According to industry sources, the delay has been mainly from the banks’ side. And unless banks finish their system upgrade, payments aggregators cannot start working on theirs.

Lenders are now sounding off their customers about the changes. In many cases, customers are advised to make direct payment for standing instructions as the old facility gets scrapped in the interim. For instance, Axis Bank had earlier sent a message to its customers, saying standing instructions won’t be honoured with effect from September 20. The bank, it said, was engaged in building a solution, but it would stop processing standing instructions on recurring payments. 

However, replying to a Business Standard query, Sanjeev Moghe, EVP & head — cards & payments, Axis Bank, said, “We will be going live in the next two-three days, complying with the RBI guidelines.”  

Similarly, HDFC Bank in its correspondence to customers, said, “The new conditions prescribed by the RBI require a cohesive effort by all stakeholders, including card-issuing banks, merchant acquiring banks, card networks, and merchants. All constituents must complete the development, integration, and deployment of a ‘common’ platform fully compliant with the RBI guidelines”.  

HDFC Bank said it had completed its internal development and was fully integrated with the “common industry platform”. Merchant standing instructions on MasterCard, Diners, and RuPay are coming soon, the bank informed its customers.

“We will implement the RBI guidelines on auto-debit payments from debit/credit cards with effect from Oct 1,” said an ICICI Bank spokesperson.

However, American Express has told its customers that any existing standing instructions for domestic and international recurring transactions will not be processed from October 1. But it will offer a solution soon, the card network said. Email sent to Visa did not elicit a response.  

“Under the new framework, except for the initial discomfort of setting up e-mandates, customers stand to benefit a lot, as unlike the previous regime, they will have the option of opting out of payment when they feel like, without discontinuing the services," said Mihir Gandhi - partner, leader, payments transformation, PwC.

The new framework mainly applies to over-the-top (OTT) and direct-to-home platforms, media platforms, websites, and everything that depends on the auto-renewal of subscriptions. A customer has to register for e-mandate at the merchant’s site while doing the first transaction, choosing the validity period and maximum amount.

Only standing instructions on cards will get affected, and not standing instructions given to banks by the customers. So, payments towards equated monthly instalments (EMIs) and systematic investment plans (SIPs) will not face any issue.  

Any mandate registration, modification, and deletion will 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.  

The pre-debit notification will provide a link leading to a customer portal, where customers can view, modify, opt out or cancel the transaction. Any recurring payments above Rs 5,000 will mandatorily have to be done through AFA every time it is due for payment.