Under RBI’s new guidelines, auto-debit payments are likely to be cancelled starting April 1. The banks who may not issue a warning to their customers about the new changes will attract hefty fines by the Indian finance regulator RBI. Banks like Axis Bank and ICICI bank have already started sending messages to their customers about the cancellation of auto-payments from credit and debit cards.
On Wednesday, Axis Bank sent a message communicating the new change to its customers saying, “processing of e-mandates for recurring transactions without Additional Factor of Authentication (AFA), will be discontinued w.e.f. April 1, 2021.” Following the suit, ICICI Bank also sent a communication to its customers saying recurring transactions based on ICICI Bank Cards will be disabled from April 1.
You know that time you subscribed to a streaming service or a journalism platform to read one article? But to sign up you had to enable auto renewals knowing that you could opt out anytime. But the hustle of everyday life made you forget about cancelling the service and the money kept getting auto-debited from your account. If this situation describes just how you lost a substantial sum of money, a new RBI rule that is to be effective on April 1, may help you.
The new guidelines by the RBI regarding auto-debit payments
Before we talk about the new rule, we should talk about the current state of affairs. Currently, a customer who wants to subscribe to a service receives an OTP for the first transaction which enables the auto-debit functionality. For the coming weeks/months, the subscription amount would be debited automatically and customer would only receive a text message of the amount debited from their account.
In its 2019 circular, the RBI issued a guideline saying an issuer will need to send a pre=transaction message to the customer 24-hours before the actual charging transaction takes place. After the customer receives the notification, they may choose to continue the service by opting-in the transaction or opt-out. This new guideline will be effective from April 1. In a nutshell, one may need to just keep an eye out for auto-debits messages from their banks, and eventually approve the transaction or opt-out from service.
Is this rule applicable to all kinds of transactions?
According to RBI guidelines, the impact should be first felt on auto-debits over Rs. 5,000. This includes utility bills like electricity, subscription renewals. Other items that fall below the Rs. 5,000 will remail excluded. However, reports suggest that due to some confusion on the lenders’ parts, all kinds of auto-debits will be cancelled. For example, Axis Bank and ICICI in its message said that all standing instructions will be cancelled.
Why RBI brought a rule to cancel auto-debits?
According to a report by news outlet BloombergQuint, banks and RBI’s have been repeatedly getting customer complaints about third-party services debiting an amount from their accounts despite the customers’ claims that they had opted out of the service.
Moreover, Vivek Iyer, partner at Grant Thornton said that the financial information of customers possessed by services presented a larger data security challenge. Another pioneer in the space, Mr. Vishwas Patel, Payments Council of India Chairman, said that although there were complaints, these complaints were smaller compared to the number of transactions the lenders saw. This created a trade-off between cost and benefit of creating a new system which required to comply with the RBI guideline.
Are there any other alternatives we can use?
There are a few temporary alternatives. One of them is to use other payment systems such as Bharat Bill Payment system or payment outlets such as BillDesk, PayUBiz, as these platforms allow customers to first view their bill before they have to make a payment. This helps the payment companies comply with the Centre’s 2-factor authentication guidelines, and also helps customers be in more control over their finances.
Another solution that customers may end up using is using UPI-based payment platforms like Paytm, Google Pay and more to route their recurring payments. Banks can also use SMS services that will have a bill along with the payment link through which the customers can pay the services.
Although, it’s evident that none of these processes are as seamless as auto-debit functionality RBI wants to do away with.