The Government’s flagship “Digital India” program aims to empower society towards a digital economy, facilitating smooth international transactions.
Several measures have been taken to promote digital payments worldwide and augmented several programs or guidelines to maintain the compliance requirements of the payment procedure.
The volume of digital payments has increased significantly since we went into lockdown due to the COVID-19 pandemic. During COVID-19 in India, the trend toward digital payments accelerated significantly.
However, as digital transactions have increased, people have become more vulnerable to cyber fraud and unwanted auto-debits. As a result, the new RBI guidelines were issued to protect end-users following multiple auto-debit transactions carried out without the customer’s knowledge or consent.
The Need For Such A Move
RBI’s new rules or guidelines are meant to ensure compliance with requirements and avoid payment-related frauds. These new regulations or policies protect digital payments from fraud, especially on third-party platforms.
Introducing such a mandate will help induce control and comply with the specified regulations. The RBI guidelines will be able to regulate payments undertaken with debit cards or credit cards.
The RBI’s new guidelines will impact payments for insurance premiums, subscription renewals with over-the-top (OTT) platforms, ordering food through e-commerce websites, utility service providers, and other similar transactions.
However, because many banks have yet to implement their e-mandate process, which may take some time, the new system will likely cause confusion among millions of customers who transact with debit and credit cards regularly and execute such recurring payments.
What Are The RBI Guidelines Introduced For These Transactions?
For banks and other financial institutions, these guidelines introduced by the RBI shall be complied with. These guidelines will pose several challenges to them as they will have to overhaul the existing process of transfers and implement the new system. These procedures are highly standardised and must be compiled to ensure the smooth execution of payments.
Under the new rules, the procedures would require more authentication to execute the payments. All kinds of recurring payments, specially made through debit or credit cards, with an amount of more than Rs 5000, would precede a prior notification, before 24 hours, informing the customers about the scheduled payment. The advanced notification sent last, before 24 hours, is meant to seek the customer’s approval regarding the payment, per the norms specified by the Reserve Bank Of India.
Per the latest guidelines, transactions exceeding Rs 5000 would send a one-time password ( OTP) to the customers. Banks will have to send them pre-debit notifications; only they can process the auto-debit transactions. Transactions will be executed for those customers who comply with the e-mandate of the new guidelines imposed by the Reserve Bank Of India. Recurring payments of less than Rs 5000 would not require such a mandatory process or procedure. However, this procedure will apply to debit and credit cards globally and internationally. In a nutshell, this process is meant to offer more regulatory control and secured transactions.
Why Were The RBI Guidelines Introduced?
The service providers, banks and financial institutions had to calibrate their servers and systems to comply with the new guidelines imposed by the RBI. The new RBI guidelines for recurring transactions went into effect on October 1, 2021.
Cardholders can now: under the new rules:
- Gain greater control over their recurring payments made with credit and debit cards.
- Set the amount for recurring transactions ahead of time.
- Cancel services that necessitate recurring transactions.
- The new RBI guidelines aim to improve transaction ease and transaction security.
Impact on Customers
Since all kinds of recurring payments are above Rs 5000, they are preceded 24 hours before notification, which requires customer authentication through a one-time password to proceed with the transaction. To explain the process, the customers used to execute the payment procedure via their debit or credit cards. Still, from October 1, they would have to perform the recurring payments routed from the issuer’s bank.
In other words, customers will need to re-register with each payment method, whether debit or credit card. After that, the first recurring transaction will have to go through an additional factor authentication (AFA) system, i.e. approval in advance of such auto-debit requests with a value greater than Rs 5,000.
Many users would set auto payments for goods and services ranging from electricity to gas. This would result in chaos and confusion among the groups of customers. If the standing instructions are linked with the bill payments of the user’s account, there will be no change. The new guidelines would only change the instructions related to credit and debit cards.
Impact of RBI guidelines on Several key players
- Cardholders: A few cardholders faced auto-debit issues as their banks did not comply with the new RBI guidelines. Since renewals on existing subscriptions or auto-debits have stopped working, subscription-based service providers have sent manual payment reminders or links to customers to collect payments.
- Business: Several subscription-based companies were kept on hold due to the guidelines imposed. Many showed alerts regarding the cards not being supported by the payments, as they did not comply with the RBI guidelines. So they had to explore several alternative options regarding signing up for auto-debits. Several online payment gateways must mandate policies with the above-stated guidelines to execute smooth domestic and foreign-based transactions.
PROCEDURE: Failures in recurring payments will continue until international merchants sign up for e-mandate services from India. For global vendor subscriptions, you can make a one-time payment every month.
Here’s how you can request a payment link from your vendor:
- Send your vendor an email requesting a one-time payment link. In the email body, explain your problem in detail.
- You will receive a one-time payment link from the vendor. They can also send a bill. You may pay the required amount by credit card.
- You can repeat these steps monthly until international payment gateways meet the new RBI guidelines.
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