Modification in the Autopayment Guidelines, 2020 by RBI

On December 4th 2020, the RBI circulated a statement suggesting changes in the autopayment rules for utility or other such recurring payments done via Debit/credit card or UPI. This was brought forward by the RBI and presented to all banks operating in India as a measure for avoiding risks or frauds related to automated payments via your debit/credit cards or UPI.

When is the New Deadline and Who does this apply to?

In a relief for all banks and wallets, Reserve Bank of India (RBI) on Wednesday extended the timeline for processing recurring online transactions by six months.

Even though the original deadline has been extended multiple times, banks and financial institutions now have time till 30 September to implement the new framework, i.e., 30/09/2021. 

“To prevent any inconvenience to the customers, Reserve Bank has decided to extend the timeline for the stakeholders to migrate to the framework by six months, i.e., till 30 September 2021,” RBI said. They also added: “Any further delay in ensuring complete adherence to the framework beyond the extended timeline will attract stringent supervisory action,”.

It applies to every customer who has automated recurring online payments above the given limit of Rs. 5000 (Per month) including individual customers but not limited to them. It also applies to enterprises. People usually use the auto-payment or recurring transactions for paying mobile, utility and other bills.

The monthly subscription charges for different streaming platforms including Netflix, Amazon Prime, Disney+ Hotstar are generally auto-debited from debit or credit cards. 

Under the new norms, banks will have to inform customers about recurring payments at least 24 hours prior to the actual debit to the card. The notification can be sent to the users via SMS or email. To carry the transaction for the first time, a nod from customer is mandatory. The limit for auto-debit from cards and wallets, is set at ₹5,000.

What changes will the RBIs New Autopay Rule bring and How does it affect you?

All payments above Rs. 5000 will require an additional confirmation through the medium of OTPs. (One Time Passwords) which will be sent to the customer via SMS or Email. The rule will be enforced not only on Debit/Credit cards but also on UPIs and e-Wallets.

The Banks/UPI hosts will have to ensure that the customers consent is taken even before sending the OTP. This consent will be taken via a confirmation and informative text one day (minimum 24 hours) prior to the actual payment. The users will be informed that in 24 hours they will be receiving an OTP for the recurring transaction and they will also be given the option to accept or deny the payment.

This will be applicable to all types of recurrent payments, for example phone bills, OTT platform subscription charges (Monthly charges for Amazon prime, Netflix, etc) and various other such recurring online automated payments.

For example, if your Netflix account currently has recurring payments set up for each payment cycle via your debit/credit card or UPI and the fees are more than Rs.5000/- , you will be sent a notification 24 hours before the expiry of their subscription, and an additional OTP will be required to be entered at the time of payment. This takes away the comfort of automatic payments but re-instates a higher level of security and prevents fraudulent behaviour from any known or unknown merchant issuing a payment to your card. 

How will it affect Enterprises?

As a result of these rules, the business models of many enterprises will be disrupted. It has also been pointed out that if there is consolidation within the payment industry, from a financial standpoint or if only bank payment aggregators/gateways are allowed to store card data, a lot of payment merchants will be forced to work with only a handful gateway providers which is not good for competition, infrastructure efficiency or concentration risks.

Enterprises will be unable to provide customized checkout and single click automated payment, resulting in unnecessary friction for consumers. Because of an additional process required each time there is an annual subscription payment, it will be bothersome to most consumers and it will have a huge impact on consumer confidence and adoption of digital payments.

Even though the RBI’s intent is to safeguard the financial account of a consumer, but the step taken is a little too severe from an enterprise’s point of view as it takes away the comfort of automatic billings. 

What are the views of financial experts on the same?

An established professional in the industry, who has wished to remain anonymous has stated that if the RBI does not extend the deadline for enforcing the AutoPay rules, it will cause an upsetting effect to the customers as well as the payment hosts (Banks/UPIs/etc) as there are multiple factors at play.

Some banks need a few more months to establish the framework in their software to comply with these rules. Some UPIs and such third party payment processors have rock solid contractual agreements which deny the banks access to personal information, which could also cause trouble.

Most importantly, automated payments were established to make the lives of customers easier and hassle free, but with the initiation of additional OTPs, it takes away the essence of automated payments and would likely work towards destroying the costumers trust in the ease of access of online/digital/virtual payment portals or processors including but not limited to banks.

About the Author – Aditya Pratap

Aditya Pratap is a lawyer practising in Mumbai. He argues cases in the Bombay High Court, Sessions and Magistrate Courts, along with appearances before RERA, NCLT and the Family Court. For further information one may visit his website adityapratap.in or view his YouTube Channel to see his interviews. Questions can be emailed to him at aditya@adityapratap.com.

This Article is made by Aditya Pratap in assistance with Ishaan Dhaddha.

Cases argued by Aditya Pratap can be viewed here.

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