If you are someone who uses mobile wallets or debit/credit cards for recurring payments and auto-debit activities, there are a few changes in store for you. The Reserve Bank of India (RBI) has laid out new auto-debit rules effective October 1, 2021. Let’s dive deeper to understand what the new rules are and what they mean for you.

What are the new auto-debit rules?

RBI has introduced a new feature called Additional Factor Authentication (AFA) to make digital transactions safer and protect customers from fraudulent activities. As per the new norms, financial institutions will now ask for additional authentication for recurring payments of Rs. 5000 and above.

They are also mandated to notify the customers at least 24 hours before the payment is deducted. Unlike before, the transaction will only be allowed if the customer gives permission using a One Time Password or OTP.

As a result, customers now have the facility to view, modify, even opt-out of a particular mandate or recurring transaction by using the link provided in the pre-debit notification. This link will state the amount, merchant’ name, due date, and reference number. However, the rule only applies to:

a)     Credit cards

b)     Debit cards

c)     Unified Payments Interface (UPI)

d)     Prepaid Payment Instruments (PPI)

In a nutshell, service providers must inform the customers in advance when a recurring payment is due to carry out the transaction. All auto-debit transactions will continue to happen automatically, but only after receiving authentication from the customers themselves. 

Although the changes were supposed to come into effect from April 1, 2021, RBI extended the deadline to help financial institutions comply with the new rules and implement them effectively.

Additional Read: RBI announcements to support MSME recovery post-second wave

What is the objective?

According to the RBI, auto-debit transactions on third-party merchant websites were susceptible to fraud, and customers often fell prey to data breaches. Moreover, customers didn’t have the power to opt out of service during debits. To safeguard the customers’ interest and make online transactions more secure, RBI is now mandating the two-factor authentication method.

These rules are part of risk mitigation measures and further enhance customer convenience and bolster the safety of digital payments. Simply put, they aim to provide more power in the customers’ hands and protect their data. Besides, the additional factor authentication will also provide more flexibility to the customers if they change their minds and wish to annul a particular service.

The services affected by the newly modified RBI guidelines include –

·        Subscription renewals with over the top (OTT) platforms like Spotify, Amazon Prime, Netflix, etc.

·        Insurance premium

·        DTH subscriptions

·        Payments of mobile bills

·        Utility bill transactions

More importantly, the new guidelines will only impact standing instructions on cards, cheque books and auto-debit facilities. They are not applicable for equated monthly instalments for loans, insurance premiums or financial instruments like mutual funds and SIPs.

How will the new rules affect you?

Wondering how these new guidelines will affect your day to day transactions? Here are a few pointers that will tell you everything you need to know:

·        You will receive a pre-debit notification or OTP through SMS/email 24 hours before the debit for recurring payments exceeding Rs. 5000.

·        You can use the link provided in the notification to opt out of the transaction.

·        You will have the liberty to modify, view, or cancel any standing instructions (SI) set on your card. Plus, you can set a maximum amount for each SI.

·        If you have given standard instructions for subscriptions on websites like Netflix, Amazon, YouTube, etc., you will have to update them.

·        If you use any third-party merchant websites to auto-pay your bills, you must re-register and update your payment details before the period ends.

Although RBI has constructed a framework for financial institutions to implement the new feature, many merchants and institutions lack the platform for this fundamental shift. They must develop their subscription management platforms soon to comply with the latest auto-debit guidelines. Meanwhile, consumers should wait for operational clarity from their service providers.

Once the needful is done, you’ll need to re-register yourself in each of the payment instruments you use for recurring mandates or transactions. These include credit cards, debit cards, and UPI. Thereafter, you will need to approve every auto-debit request beforehand to ensure a successful debit. 

Additional Read: Everything you need to know about RBI’s Loan Structuring Scheme

To sum up

Are you currently servicing a loan with Tata Capital and are worried about the new auto-debit guidelines? Well, fret not! You don’t have to worry about your monthly EMIs yet. Since the mandate doesn’t impact monthly instalments, your EMIs are not likely to face any turbulence.

To know more about Tata Capital’s loan offerings, visit our website or contact us today!

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