There will be no impact on mutual fund SIP, insurance premiums or other recurring payments if the standing instruction for auto-debit is from your bank account.
For those bank account holders who use their debit/credit cards or mobile wallets for recurring auto-debit transactions, there is going to be a change coming in from next month. As per a release issued by the Reserve Bank of India (RBI), from October 1, 2021, onwards, banks and other financial institutions will have to acquire an additional factor authentication from their customers for the auto-debiting feature. This will apply to any recurring payments that exceed Rs 5,000.
The RBI had initially issued this mandate in August of 2019 with a framework for processing e-mandates on recurring online transactions, which was at the time, only applicable to cards and wallets. It was then extended to January of 2020 to cover Unified Payment Interfaces (UPIs) as well. Then again in March of this year, the apex bank issued an additional mandate extending the deadline for the implementation by six months, making the last date September 30, 2021.
As per the new mandate that is set to come into effect from the next calendar month, any monthly transactions above the aforementioned limit will be subject to Additional Factor Authentication (AFA). This will encompass payments made through debit cards, credit cards, UPI or any other prepaid payment instruments (PPIs).
Additionally, banks and financial institutions will have to send a notification to their customers at least 24 hours in advance, ahead of the auto-deduction. The debit will only be allowed to go through after getting the customers consent for the same. The pre-transaction notification will be sent via SMS or email and it will give cardholders information such as the merchant’s name, transaction amount, the date and time of the debit, reference number of the transaction and the reason for the transaction. Cardholders will have the option to opt-out of this process.
Keep in mind that, there will be no impact on your mutual fund SIP, insurance premiums or other recurring payments if the standing instruction for auto-debit is from your bank account. However, debit and credit cards will be subject to the new rule change, hence it is important to keep things updated and make sure that the correct mobile number and email are linked to those facilities.
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Payments that will be Impacted
The new rule change will impact users who have to make auto-debit payments for things such as OTT platforms like Netflix, Amazon Prime as well as music apps for Apple Music and Spotify. Additionally, it will also extend to monthly auto-debit utilities such as mobile recharge bills, insurance premiums and so on. Keep in mind that this is for recurring payments and is not a one-time-payment authentication scenario. In the case of OTT platforms like Netflix, you will only need to deal with this additional factor authentication if the amount due is more than Rs 5,000 as mentioned above.
The Extension of the Deadline for Banks and Other Financial Institutions
As mentioned before, the deadline has been moved up several times to date. The reason behind it is that many of the major banks such as HDFC Bank, ICICI Banks and the State Bank of India (SBI) had not complied with the issued mandate, which forced the RBI to extend the deadline by six months.
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“The framework has not been fully implemented even after the extended timeline. This non-compliance is noted with serious concern and will be dealt with separately. The delay in implementation by some stakeholders has given rise to a situation of possible large-scale customer inconvenience and default. 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 September 30, 2021. Any further delay in ensuring complete adherence to the framework beyond the extended timeline will attract stringent supervisory action. A circular advising the above is being issued by the Reserve Bank today,” said the RBI.
