The New Guidelines for auto-debit transactions have been mandated by the Reserve Bank of India (RBI) to enhance card safety. In the RBI new guidelines directive, recurring payments will no longer be made for various services as additional authentication will now be necessary when recharging phones, DTHs, and OTTs, among others.
What are the New RBI Guidelines for Auto Debits on Cards?
On October 1, 2021, all types of recurring or repetitive payments are made with a credit or debit card and are worth Rs. 5,000 or more will be preceded by a notification 24 hours in advance, informing the customer of the scheduled payment. The RBI’s new guidelines require banks to notify customers of advanced notification prior to processing recurring payments and to obtain their approval to proceed with the transactions.
Unless the customer’s consent is received, these transactions will not be executed. As part of this new system, banks will send their customers one-time passwords (OTPs) for any transaction above Rs. 5,000. As of October 1, 2021, recurring transactions originating from customers’ credit or debit cards that do not comply with this RBI’s new guidelines will now be declined by banks.
Customers can also opt-out of a particular transaction or mandate via the link provided in the pre-debit notification. These new RBI rules will not impact standing instructions registered using mutual funds, SIPs, or equated monthly installments for loans.
The Motive of RBI’s New Guidelines
The Reserve Bank of India said the requirement of Additional Factor of Authentication (AFA) has made digital payments in India more secure and the primary objective is to protect customers from fraudulent transactions and improve customer experience.
The RBI New Guidelines are designed to protect customers from online frauds, especially on platforms operated by third parties, where the chances of payment-related frauds are greater. By introducing a kind of e-mandate, RBI wants to give customers enhanced control over the use of their credit or debit cards for recurring payments.
Now, these recurring transactions will be able to be pre-determined and fixed by the customer in advance. Through the apps, people will also be able to cancel any such services offered by banks.
Who is Impacted by the RBI New Guidelines and How?
The issuing banks decide if their cardholders can use their cards for auto-debit or not. The RBI issued the guidelines in 2019, but they were strictly enforced only in March 2021. A directive has been issued to all banks to comply with the guidelines for processing auto-debit payments on cards by 30 September 2021.
How to Tackle the RBI New Guidelines – For Cardholders
Due to non-compliance with RBI guidelines, some cardholders began experiencing auto-debit issues on their cards in April 2021. Since subscription renewals and auto-debits suddenly stopped working, service providers that depend on subscriptions had to send customers manual payment reminders or payment links to collect customer payments.
If a bank fails to comply with the RBI’s new guidelines by 30 September 2021, then cardholders of these banks will not be able to sign up for auto-debit or standing instructions. Some cardholders, whose existing auto-debits aren’t compliant with RBI guidelines, may be receiving alerts from their banks that their existing auto-debits won’t work, and may need to switch to another payment method, such as UPI, or use a particular bank’s card to subscribe again to ensure that auto-debit payments or standing instructions continue to work and are compliant with the RBI new guidelines.
How to Tackle the RBI New Guidelines – For Business Houses
The beginning of April 2021 was a rough time for many subscription-based businesses. Businesses were unable to onboard new customers using cards, and the payment method ceased to exist. Many of them displayed alerts on their websites that said that cards were unsupported for recurring payments or that a particular payment method was inaccessible.
Consequently, subscription businesses had to explore alternatives to enroll new customers and get them to sign up for auto-debits. The UPI became the most popular method of paying by auto-debit, followed by the e-Mandate linked to Bank accounts for a few organizations.
The future of businesses from 1 October 2021
- Inform customers that they cannot process auto-debits on their existing subscriptions due to the new RBI guidelines.
- Make use of alternative payment methods such as UPI Autopay and encourage customers to sign up for auto-debits.
- Collect one-time payments if the auto-debit is about to expire or is due for renewal.
- Now that businesses can better control and manage auto-debits, they can build trust and instill confidence in customers.
- As your customers become more confident in their auto-debit payments, you will be able to up-sell and cross-sell more products so that you retain your customers.
How SabPaisa Supports Businesses Comply With RBI Guidelines
The objective of SabPaisa, as a pioneer in the digital payments space is to optimize the experience for consumers by powering the recurring payment ecosystem.
This is why we built Subscription Paisa, a unique mandate processing and payment collection platform that offers recurring subscription payments through e-NACH/e-mandates for more than 50 banks to merchants. Subscription Paisa enables businesses to adopt subscriptions as a single platform for processing payment mandates across all modes, using NACH, NetBanking, debit cards, credit cards, and UPI.
Subscription Paisa has powerful features such as a Unique validation algorithm for validation of mandates, a stress-free easy automated EMI option for smooth recurring payments, and an Auto trigger of Payment links through SMS/E-mail for payment collection in case of mandate failure.
The RBI’s new rules are going through a huge change that affects everyone who makes recurring payments (including banks, businesses, cardholders, and payment aggregators). In the future, subscription models will be the most popular way for businesses to make money, and they will keep getting more popular.