With the Reserve Bank of India extending the deadline on additional authentication on payments for recurring transactions from April 1 to September 30, you can breathe a sigh of relief.
Otherwise, from April 1, the auto-payment rules for mobile, utility and other bills was supposed to change: this meant that the payments that your banks made on your behalf automatically (through the ECS facility) would no longer be done and you would have to manually pay all your bills.
The Reserve Bank of India says that recurring transactions using debit cards, credit cards, Unified Payments Interface (UPI) or other prepaid payment instruments (PPIs) will need additional factor authentication (AFA) from 1 April: this has now been extended to Sept 30.
So what will happen under the new norms?
From Sept 30, banks will be required to inform customers in advance about recurring payment due and transactions would be carried forward only after the customer approves it.
Which payments will be affected?
The new guidelines will impact payments for electricity, water and phone bills, loan instalments, insurance premia, subscription charges for different OTT/ video streaming platforms such as Netflix, Amazon Prime, Disney+ Hotstar, et cetera, because of the changes to the RBI’s Electronic Clearing Service .
Why is this being done?
The RBI said that people banking online must be provided with more security and additional authentication norms for recurring payments that are directly made from their bank accounts because of the standing instructions you have provided through the ECS facility.
The ECS facility was really handy as it made life much easier as one did not have to stand in queues or remember the due dates of payments to be made: the bank took care of this.
So what is the problem?
Many banks and service providers have not yet updated their systems to comply with the new RBI rules even 18 months after the banks were first informed about this. The RBI had given a deadline of March 31 to banks.
Since the RBI had earlier refused to give extension, most banks are not in a position to abide by the rules by April 1.
The new RBI rules state that banks and service providers need to inform the customer 5 days before (or at least 24 hours before) the payment is due. The bank can deduct the amount from the customer’s bank account and pay it on his/her behalf only after he/she okays it.
The customer will have the option to choose the mode — either SMS or email — for receiving the notification from the issuer before the transaction.
RBI says this will also ensure that the customer has enough balance in the account for clearance of the payment.
Many of such payments are of amounts less than Rs 5,000, but if a recurring payment is more than that amount, an additional authentication is needed and the banks have to provide an OTP (one-time password) to the customer.
As banks have not set up the infrastructure to follow the RBI instructions they will have to decline automatic payments, as without AFA in place, they will have to pay a fine of Rs 5 lakh for every failed transaction.
So what will you need to do?
If a bank has not updated its system to comply with the RBI guidelines, you will not be able to have automatic payment done to the services you subscribe to and you will have to individually and manually make payments by the due date.
If your bank has not updated the system, it will decline automatic payments and therefore customers will have to make manual transactions to pay their bills.
You will have to visit the payment page of individual merchants to pay bills or continue subscriptions.
This may still happen if banks do not update their systems by Sept 30.
Where it all began
As per the RBI directive, automatic or recurring payments from debit and credit cards or wallets will require additional authentication from the customer. This means customers will have to give their consent before the bank can deduct any amount towards bills and other charges.
RBI said, "A cardholder desirous of opting for e-mandate facility on card shall undertake a one-time registration process, with AFA validation by the issuer.”
It may be noted that the limit for automatic or recurring payments from cards and various wallets has been set at Rs 5,000. However, an additional OTP will be needed for any amount above Rs 5,000.
As mentioned earlier, the new automatic or recurring payment rule will apply to all types of transactions involving debit card, credit card, UPI, PPI and mobile wallets.
Limit increased from Rs 2,000 to Rs 5,000
The limit for auto-debit from cards and wallets has been increased to Rs 5,000 now. For any transaction above Rs 5,000, an additional one-time password (OTP) will be required for it to be ratified.
The new regulations are applicable to all transactions via debit cards, credit cards, UPI and PPIs, including wallets, RBI has said.
The Reserve Bank of India, in a circular on December 4, 2020, had asked banks to introduce additional factor authentication by 31 March, 2021. The circular said: ‘Processing of recurring transactions (domestic or cross-border) using cards/PPIs/UPI under arrangements/practices not compliant with the aforesaid instructions shall not be continued beyond 31 March, 2021.’
However, in view of the fact that the general public could be put to trouble for banks not having upgraded their infrastructure, the RBI has decided to give another 6 months to banks to comply with its rules.
The issuer shall provide the cardholder an online facility to withdraw any e-mandate at any point, RBI said. "No charges shall be levied or recovered from the cardholder for availing the e-mandate facility on cards for recurring transactions," the bank noted.
Banks have started informing its customers about this new rule and have already sent messages to their customers informing that they will have to manually transact for paying utility, mobile and other service bills. So banks will not deduct any fees automatically on your behalf from Sept 30.
Will this go on forever?
Not necessarily. The RBI has refused to extend the deadline but reports suggest that this issue would most likely be resolved in a few weeks.
What will be affected, what will not be hit
A Moneycontrol.com report said that monthly subscriptions to Netflix, Zee5, Amazon Prime, and other OTT platforms will be affected and you will have to manually renew your subscriptions.
Insurance premium payment will be canceled, which means you will have to pay it yourself manually.
However, the standing instructions given to banks for paying your house rent will continue.
Also, automatic payments for your mutual funds and SIP payments will continue as earlier.