RBI Set New Auto Debit Rule:
What are the new rules:
- Under the new norms, banks will be required to inform customers in advance about recurring payment due and transaction would be carried following nod from the customer.
- So the transaction would not be automatic but would be done after authentication from the customer.
- For recurring payments above Rs 5,000, banks are required to send a one-time password to customers as per the new guidelines.
- RBI decided to increase the limit for contactless card transactions and e-mandates for recurring or auto transactions through cards and UPI from Rs 2,000 to Rs 5,000, the RBI guidelines stated.
- While registering, customers can now provide the validity period for future transactions. For recurring payments above Rs 5,000, banks are required to send a one-time password to customers as per the new guidelines.
- Most of the banks including State Bank of India (SBI) have informed their customers about the rules
Objectives:
- To improve the safety and security of card transactions as part of risk mitigation measures.
- To bolster the safety and security of card transactions, the Reserve Bank of India (RBI) mandated new auto-debit rules kick in from Friday.
- RBI’s directive states that there will be no automatic recurring payment for various services including utility bills, recharge of phone, DTH, and OTT, among others as the additional factor of authentication (AFA) will become mandatory .
What is the issue:
- The RBI, the banking regulator, is concerned about the fact that auto-debit transactions on third-party merchant websites are susceptible to fraud.
- Sometimes the debits are done despite the customers opting out of service.
- To safeguard the interest of customers and to make sure all payments are secure, RBI is mandating two-factor authentication.
- Two circulars in this regard were issued to banks – one in August 2019 and another in December 2020 and they were given a deadline of March 31st to adhere to the new rule.
- However, the RBI decided later to extend the deadline to September 30 as the banks weren’t ill-prepared for its implementation.
How will it affect public?
- First of all, two-factor authentication is a safety feature and it will ensure you don’t make any unapproved payments.
- From Oct 1, for any recurring payments done through third-party websites, one has to send a communication to the customer five days in advance and at least one day before the due date informing him about the scheduled payment.
- Additionally, it will provide an option to either pay/part-pay or opt-out of it. On the due date, OTP or any other authentication mode will be active and the customer will accordingly make the payments.
- So, if you have subscribed to services like Amazon Prime, Netflix, Spotify, iTunes, Google, Gaana (including utility bill payments and insurance premiums) using recurring payments on your credit or debit card, then it will not be allowed from 1st October 2021 onwards. However, existing subscriptions will also not be cancelled.
One-time registration process
- Customers will have to go through a one-time registration process, and subsequent transactions can be performed without the additional factor authentication.
- While registering, customers can now provide the validity period for future transactions.
OTP for payments above ₹5,000
- For recurring payments above ₹5,000, banks are required to send a one-time password to customers as per the new guidelines.
Choose to opt-out
- Customers can now even choose to opt out of a particular transaction or mandate via the link provided in the pre-debit notification.
No impact on these auto-debits
- Any standing instructions registered using bank accounts for mutual funds, SIPs, equated monthly installments for loans will not be impacted by these new rules.
RBI’s motive
- RBI had said the requirement of AFA has made digital payments in India safe and secure and the primary objective of the framework was to protect customers from fraudulent transactions and enhance customer convenience.
About RBI:
- The Reserve Bank of India(RBI) is India’s central bank and regulatory body and is responsible for the issue and supply of the Indian rupee and the regulation of the Indian banking system.
- It also manages the country’s main payment systems and works to promote its economic development.
- Established : 1 April 1935
- Governor: Shaktikanta Das
- Deputy governors (4): Rabi Sankar, M. Rajeshwar Rao, Dr. M. D. Patra, M. K. Jain
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