The auto-debit rules set by the Reserve Bank of India (RBI) in 2019 for recurring online transactions finally became effective on Friday, October 1, two years after their initial announcement. The update is expected to impact lakhs of customers who have opted for recurring online transactions. From online subscription to services including Netflix and YouTube to paying for phone and utility bills, all auto-debit transactions will now have to go through a new process. This change is not limited to domestic payments and also applies to international recurring transactions that are being done through credit and debit cards as well as prepaid payment instruments (PPIs).
First announced in August 2019, the new rules were final for March 31. However, the RBI extended that deadline by six months to Thursday, September 30.
Industry sources told Gadgets 360 that banks including Axis Bank, Bank of Baroda, Citibank, HDFC Bank, IDFC Bank, Kotak Mahindra Bank and Standard Chartered are complying with the new norms. SBI credit card is also all set to start with the new process. However, the debit card division of State Bank of India (SBI) along with most other commercial banks are yet to implement the necessary changes on their part. The position of a large number of public sector banks as well as various co-operative banks is also not very clear to the industry stakeholders.
“Indian banks are like a rocket, that doesn’t mean they aim for the sky, but they really only work if there is fire backwards to complete the timeline for doing so. So, if today is the deadline, now we will start looking at the last minute and start working overtime to get things done,” said Vishwas Patel, Chairman of Payments Council of India (PCI) and head of Infibeam Avenues. said the executive director.
Since the onus of implementing the new transaction process rests primarily on banks, payment gateways and merchants on their part remain ineffective in providing a seamless experience.
Patel told Gadgets 360 that the PCI had earlier this week written a formal letter to the RBI seeking a delay in the update. The central bank did not respond to the letter.
Various commercial banks have informed their customers that they will reject all non-compliant transactions as prescribed on the merchant site or app to comply with the new norms. Irrespective of the bank, customers using MasterCard are also likely to be affected in the current phase – due to the card issuer’s ongoing ban in the country. Apple separately warned developers building apps for their devices about a drop in some transactions due to the update.
Ram Rastogi, a digital payments strategist working with the National Payments Corporation of India (NPCI), said, “India may experience a drop in millions of transactions, resulting in financial disturbances in the short term as well as loss of goods and services. Delivery may be affected.” Is a member of the Digital Financial Inclusion Committees constituted by RBI.
Experts, including Rastogi, suggest that the RBI should have implemented the rollout in phases and allowed banks to dry-run the process to avoid any adverse effects that might emerge in the coming days.
But despite some expected disruption initially, it is believed that the update will help improve the recurring transaction experience for users over time. RBI is also claiming this as one of the safeguards to restrict frauds as consumers will have the ability to prevent any recurring transactions from their end and stay informed about debit transactions.
But there are chances that many people will not be able to take advantage of the new rules as it requires re-registration with the merchants. Of course, banks are informing their customers about the update. Similarly, merchants, including YouTube, have informed users about the change and asked them to update their payment details. But some users are likely to take time to understand what they really need to do.
The update is especially effective for both existing and new subscriptions. This means that whether you have subscribed to the streaming service or enrolled for regular bill payments in the past, you need to re-register under the new rules.
However, if the payments are related to bank loans or mutual funds, you do not need to do any updates as they are processed seamlessly from your bank. Auto-debit or recurring transactions through the Unified Payments Interface (UPI) are also not affected as UPI umbrella body NPCI implemented a system as per the new rules earlier this year.
How to register for recurring transactions under new RBI rules?
The new auto-debit rules bring a new transaction process that requires users to re-register their cards with merchants like Netflix and YouTube for recurring transactions. It also requires two-factor authentication to complete the registration.
Once the registration for the recurring transaction is completed, you will receive an SMS from your bank. You will also be notified through a message when there is a recurring transaction.
For transactions above Rs. 5,000, you will receive an SMS message 24 hours before your bank will process it. It will ask you to consent through the link in the text. If you are not able to do so the transaction will fail. You will not be required to clear recurring transactions up to Rs. 5,000, though you will still get an SMS with the way to cancel the transaction.
In both the cases – transactions up to Rs. 5,000 and more — Your bank will send you a link to a standalone webpage via an SMS message so that you can cancel or stop them. You will receive an OTP which you will need to enter on the webpage to disable recurring transactions. It will also show upcoming recurring transactions that you can cancel.
For customers who do not want to go with the new process or have an account with a bank that is yet to implement the changes, RBI has retained the existing system where you have to go to the merchant and make payments manually. are required to do. site or app.
Challenges for banks, traders
RBI has put in place a framework for banks and merchants that needs to be deployed for recurring online transactions. But the technology for that framework has not yet been natively created – neither by banks nor merchants. Instead they need to go for third party solution which is traditionally called as subscription management platform. Companies including BillDesk, PayU and Razorpay have developed their own subscription management platforms that are being deployed by major banks and merchants to comply with auto-debit guidelines.
PayU Chief Product Officer Manas Mishra told Gadgets 360 that subscription management platforms were interoperable as not all banks and merchants would use the same platform.
“Issuing banks had no system or platform to understand the fundamental changes required under the new rules,” he said. “Therefore, we first had to provide issuers with a platform where they could manage this entire lifecycle of their subscription mandates such as linking two transactions, providing user cancellation features, and all that.”
PayU upgraded its existing Zion platform to issue banks as a standalone solution for recurring transactions. It was originally launched a few years back as a merchant-centric solution to help merchants with registration and payment processes.
Mishra stressed that Zion is able to offer features including additional factor authentication, notifications to customers and dashboards for subscription management – all of which are mandated by the new auto-debit rules.
Similar to PayU, Razorpay brought Mandate headquarters to process e-mandates on recurring online transactions in July.
Shashank Kumar, CTO and Co-Founder, Razorpay said, “The industry synergy between banks and fintech companies as a result of this new mandate will help enable recurring payments for over 900 million debit cardholders in India.”
Basically, BillDesk enjoyed a monopoly in the recurring transaction space with its SI Hub. The proprietary platform was adopted by some of the earliest banks and merchants – before the arrival of PayU and Razorpay solutions.
Banks are presently deploying the Subscription Management Platform on the existing Core Banking System. While these platforms are just an API-based solution, the process is not that easy as banks need to integrate the platforms and test them end-to-end with different merchants.
Merchants, on the other hand, need to deploy these platforms to pass on details like billing cycle and amount to be paid by the user.
Membership management platforms involve certain costs that have to be paid by banks and merchants. Those costs could have been transferred to customers in the case of debit cards and check books, but the RBI explicitly directed banks not to levy or levy any fees for providing the new e-mandate facility.
Sources familiar with developments told Gadgets 360 that the government plans to develop a unified platform-like solution over time for banks and merchants that will save them third-party fees. The exact information about its launch has not been revealed yet.