Many credit card users give standing instructions to their bank or credit card provider to make recurring payments to various service providers like Netflix, Electricity Board, or Mobile service provider, etc. This could be easily done up until March 31. From April 1 onwards, credit card users were required to make payment directly to a service provider. The main reason for this big change is that banks and merchants have not yet arrived at a solution as far as adherence to RBI guidelines on recurring transactions through cards is concerned.
Bankers are ready to provide the service and are in compliance with RBI guidelines. Merchants, on the other hand, are not yet ready and it could lead to inconvenience in payment till the time they adhere to the new RBI norms. On March 31, the Reserve Bank of India agreed to extend the timeline till September 30 for recurring online transactions.
What is the new announcement regarding recurring payments made by RBI?
Despite an extended timeline offered by the RBI, there is continued non-compliance as far as recurring payments set-up is concerned. This delay by some stakeholders has resulted in a situation of potentially large-scale customer inconvenience.
RBI predicts that there could be defaults by customers due to this non-implementation and has therefore extended the timeline for all stakeholders to migrate to the new framework within six months, the last date being September 30, 2021. RBI also announced that any delay, beyond the stated timeline, by stakeholders in complete adherence to the new framework will attract strong supervisory action.
What is the background to the new mandate?
As per the new norms announced by RBI, banks are required to inform customers well in advance about any recurring payments due. Transaction will then be carried out after getting the go-ahead from the customer. Thus, a transaction cannot be automatic but can only be done after authentication is received from the customer.
In the past few days, banks have started intimating their customers through messages or emails regarding the new expectations from RBI and how they are working on following the requirements for recurring transactions. The intimations also include the fact that standing instructions for recurring transactions will not be getting approved by the bank starting from April 1, 2021.
Thus, if you had given an instruction to your bank for making your monthly Airtel mobile bill payment or payment towards your monthly Netflix subscription, such expenses would have been automatically debited from your credit card.
However, since banks are working on the new mandate, such payments will not be going through from April 1. All customers will be required to pay their bills directly to the service providers as per the due dates. This is expected to continue until banks and other service providers finish working on all the requirements set out by RBI for e-mandate on credit cards for recurring payments.
What do the new requirements say?
As mentioned earlier and as part of the new guidelines released by RBI, banks are now required to send a pre-debit notification to all credit card users at least 24 hours prior to an actual debit on the credit card. This can be done either through SMS or email, at the customer’s convenience. Such pre-transaction notifications should inform the cardholder about the payment details including, the name of the merchant, transaction amount, date/time of expected debit etc.
- Once the cardholder receives the pre-transaction notification, he/she should be given the facility to opt-out of the specific transaction or the e-mandate.
- A validity period has to be attached to every e-mandate, which must be provided during the time of registration of the e-mandate.
- The RBI has announced the requirement of certain audit-trail requirements that the merchant service providers and banks must meet.
- At the time of registration, the cardholders should have an option to choose e-mandate for either a pre-specified fixed value of the recurring transaction or for a variable value of the recurring transaction.
- In case a cardholder opts for variable value, he/she has to provide a maximum value of the recurring transaction that will be capped at Rs. 2,000 per transaction.
- Cardholders who wish to opt for an e-mandate facility must undertake a one-time registration with AFA validation provided by the issuer.
- The issuer will also have to provide the cardholder with an online facility for withdrawing any e-mandate. No recurring transactions can be allowed for the withdrawn e-mandate.
- Till the time the card issuers and merchants follow these norms, e-mandates cannot be given by the customers.
How does this impact standing instructions from through net banking?
The RBI guidelines are meant only for e-mandate on credit cards for recurring transactions. Thus, there is no impact on the standing instructions for net banking towards utility bill payments. All standing instructions through net banking can continue as before.
The new guidelines offer additional safeguarding for customers on various aspects.
- The objective is to provide more transparency since customers can get an intimation from the issuer for recurring debit transactions at least 24 hours in advance of the debit.
- It also allows customers to cancel the e-mandate before any debit is made from the card.
- Customers can also have an option to withdraw any e-mandate during such time.
- Customers will now have to provide a validity period for the e-mandate as it cannot be for perpetuity.
Debit and credit card auto payments are now set to become far safer and transparent, thanks to the new RBI guidelines that require banks and service providers to follow stricter norms on customer intimation.
- Is there an exception to the new norms of RBI around recurring payments?
Yes. The new rule announced by RBI is only applicable for recurring amounts higher than Rs. 5,000. An additional one-time password (OTP) is required for transactions of more than Rs 5,000. However, most banks have announced the cancellation of all standing instructions payments, even those below Rs 5,000.
- As per the new RBI guidelines on recurring payments, what are banks supposed to do?
As per the new norms announced by RBI, banks are required to inform customers about recurring payments due before the payments are debited and transactions have to be carried out only after receiving a nod from the customer. The mode of notification can be chosen by the consumer during the time of registration of the e-mandate.
- Why has RBI announced the new rule?
As part of its constant focus on risk mitigation, RBI announced the new rule to provide extra safety and security on card transactions.
- Will customers benefit from RBI’s new announcement on e-mandate?
Yes, the new rules are designed to benefit customers as they can receive advance notification of an auto-debit and can choose to opt-out of it at any time.
- How will banks and lenders notify customers about auto payments?
Banks and lenders are required to send an SMS to customers about an upcoming auto-debit and allow customers to opt-out at any point.