Last Updated on January 31, 2022 by azamqasim
The Reserve Bank of India (RBI) announced modifications to auto-payment through debit or credit cards. These changes came into effect on April 1, 2021. Auto debit payments set for home loans, utility bills and other payments registered with banks have undergone change following this announcement.
Let’s uncover some facts on this change and try to understand how auto-payments will feel different from earlier.
What is the RBI Ruling on Auto-Payments?
Before the change was announced by RBI, recurring payments of a maximum of Rs. 5,000 could be auto-debited without prior authentication (such as SMS or email) from banks. With the announcement, such third-party payments will require prior registration to ensure that the card holder’s interests are protected at all times.
The banking system including all the private sector banks has adopted this integration well. However, many service providers including OTT players or app-based fintech companies have not entirely adopted this technological integration. This is primarily because the e-mandate information has to flow from the service provider to the bank and also the reverse way.
Here are the big changes as announced through the e-mandate:
- One Time Registration – Users have to perform a one-time registration process at the service provider for permitting an e-mandate facility on debit or credit card. This reaches the bank for registration. This process involves details such as the validity period of the e-mandate, fixed or variable recurring payments and amounts, mode (SMS or email) of getting notification and cancellation option on the mandate. There is also an additional factor authentication through SMS or email. This is compulsory for the first transaction or auto-payment.
- Pre-transaction notification – The customer will receive a pre-transaction notification one day in advance. This information will have the amount, name of service provider, date and time of auto-debit, reference number of the transaction, the purpose of debit. This information will help customers have all the necessary details well in advance about the potential payment from their debit/credit cards.
- Opting out of standing instructions – This is an important measure since oftentimes, customers are charged for standing instructions on credit or debit card even if they have discontinued the services. This may lead to disputes for refund. With the new measures, customers will have an option to opt out as soon as they get a pre-transaction notification. Once a customer says ‘no’ to standing instructions, the additional factor authentication will be triggered for future transactions. Customers can then recheck with the service provider and only pay the amount if satisfied. This can be done by punching the authentication code sent by the bank.
- Post Transaction Alerts – There is also a mandate to send post transaction details in the form of an alert to cardholders. This must include the name of the service provider, transaction value, date and time of amount debit, reference number, etc.
- Withdrawal from e-mandate – Service providers will now have to provide an online facility to cardholders for withdrawing from the e-mandate. This will trigger the additional factor authentication process during withdrawal from e-mandate. The RBI has announced that in case of a withdrawal from the standing instructions, the service provider must delete the client’s information such as card number and payment details.
- Dispute resolution – RBI has also provided a dispute resolution and grievance redressal mechanism. Under this, the bank and service providers must create a platform for customers to lodge their grievances and ensure dispute resolution is done within a set time frame. The RBI will monitor the turnaround time of dispute resolution in such cases.
Does the new auto-payment mandate mean additional fees?
Banks and service providers are expected to absorb all costs pertaining to the actions on the new mandate. However, they may pass on the operational costs to customers in the future.
Do the new guidelines act as safeguards for customers?
The new guidelines announced by the RBI are slated to act as safeguards for customers on various aspects related to the auto-debit facility. This will include transparency as customers can receive intimation from the bank regarding a recurring transaction debit. This will be sent 24 hours before the debit. It will also empower customers to cancel the e-mandate before the auto-debit takes place on the card. Customers will now have an option from the bank to withdraw any e-mandate as per their comfort. Customers can provide a validity period for the e-mandate to ensure that it doesn’t continue for perpetuity.
All these factors and many other subtle elements are expected to provide additional protection to customers with regards to auto-debit. Banks and service providers may have to introduce many actions regarding this announcement. Debit and credit card auto-payment can become seamless once banks and service providers take up the necessary actions as announced by the RBI.
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