New rule introduced for auto-debit transactions from October 1
If you use your credit/debit cards or mobile wallets for recurring auto-payments, an important change is coming next month. According to a release issued by the Reserve Bank of India (RBI), from October 1, banks and other financial institutions would require additional factor authentication from the customers for auto-debiting transactions. This would apply to specific recurring payments that exceed Rs. 5,000 value. Here's more.
- RBI mandate was first issued in 2019
- Auto-recurring payments worth Rs. 5,000+ to be approved manually
- Banks to notify customers at least 24 hours in advance
- The changes don't impact auto-debited mutual fund SIPs, insurance payments
- RBI warns further delay in compliance would attract supervisory action
RBI mandate was first issued in 2019
In August 2019, the RBI had issued a framework for processing e-mandates on recurring online transactions. At the time, it was only applicable to cards and wallets. In January 2020, the mandate was extended to encompass Unified Payment Interfaces (UPIs) as well. In March this year, RBI extended the deadline for this mandate's implementation by six months, deferring the last date to September 30.
Auto-recurring payments worth Rs. 5,000+ to be approved manually
In compliance with the RBI mandate slated to come into effect from October, any recurring monthly transactions made using debit cards, credit cards, UPI, and other prepaid payment instruments (PPIs) worth Rs. 5,000 or more will be subject to an Additional Factor Authentication (AFA). This means that the debit would only be processed after the customer's consent.
Banks to notify customers at least 24 hours in advance
Financial institutions will notify customers of the auto-debit at least 24 hours in advance via SMS or email. The notification would provide the cardholder information, including the merchant name, transaction amount, transaction reference number, its reason, and the date and time of the debit. We advise you to make sure the correct mobile number and email are associated with your credit and debit cards.
The changes don't impact auto-debited mutual fund SIPs, insurance payments
Cardholders will also be able to opt out of the AFA system but would be enrolled by default. Bear in mind the RBI mandate doesn't impact automatic deductions from your bank account for mutual fund SIPs, insurance premiums, and other recurring payments. The change is likely to impact those who have set up auto-debit payments for OTT platforms, music apps, internet bills, and such.
RBI warns further delay in compliance would attract supervisory action
The deadline was pushed back several times because major banks such as HDFC Bank, ICICI Bank, and the State Bank of India (SBI) had not complied with the RBI's framework. In its sternly worded circular issued, the apex bank noted that after September 30, "any further delay in ensuring complete adherence" would attract "stringent supervisory action."
