RBI's Auto Debit Rules Have Become Effective. Know More About Them Here

From October 1 onwards, all kinds of recurring or repetitive payments, especially made through credit and debit cards and which are of value of Rs 5,000 and above, are being preceded by a notification, 24 hours in advance, informing the customer about the scheduled payment.

The advanced notification for executing recurring payments to customers being sent by banks is meant for seeking the latter's approval for taking forward any such transaction, as per the new norms notified by the Reserve Bank of India (RBI).

If the customer's nod is not received, such transactions will not be executed. Under this new system, for any transaction of more than Rs 5,000, banks will send onetime passwords (OTPs) to customers. Those recurring transactions on  a customer's credit or debit card, which don't comply to this new rule, will now be declined by banks, as this system has now become applicable since October 1, 2021.

In other words, only those transactions which have the customers' e-mandate will be successfully executed, as per the central bank's new guidelines.

The need for such a move:

The new rules have been framed to protect customers from online frauds, especially on third party platforms, where it has been seen that possibilities of payment related frauds are more. Therefore by introducing a kind of e-mandate, RBI wants to provide customers, greater control while undertaking recurring payments using credit or debit cards.

Thus customers will now be able to decide and fix the amount for such recurring transactions in advance. Also they will be able to cancel any such service which is offered by banks, with the help of apps.

These kind of transactions are likely to be affected:

Auto debit or auto credit mandates likes payments for insurance premiums, renewal of subscription with over the top or OTT platforms, ordering of food using e-commerce websites, utility service providers and other such kind of transactions are going to be affected the most by the RBI's new guidelines.

However as many banks are yet to put in place their e-mandate process and as this may take some time, the new system is likely to cause some confusion among millions of customers who transact through debit and credit cards and execute such recurring payements on a regular basis.

Recurring payments of less than Rs 5,000 though, will not be impacted by the new RBI guidelines.

Impact on customers

Since all kinds of recurring payments of more than Rs 5,000 and above are being preceded by a notification to the customer, 24 hours in advance, these will go through only once the customer authenticates them through OTP mode.

To explain the process a bit, while till now customers could execute recurring transactions using their debit or credit cards, from October 1 onwards, all such recurring payments through cards will be routed through the issuer bank.

In other words, customers will need to re-register themselves with each of their payment instruments, whether it is a debit or a credit card. Once this is done, the first recurring transaction will have to be conducted through an additional factor authentication (AFA) system, i.e. through approval in advance of such auto-debit requests, which are of value above Rs 5,000.