RBI’s new guideline on auto-debit disrupt seamless payments

From 1st October 2021, there was a big change on the card auto-debit payments front. According to RBI’s latest mandate, all digital platforms and banks will have to seek users’ permission before paying bills through credit & Debit cards and even UPI.

Details of the new policy

Under the new rules, customers will have to go through an additional factor of authentication (once) for payments up to Rs. 5,000. For transactions above Rs. 5,000, banks every time need to send an SMS 24 hours before deduction through auto-debit. They shall only allow the debit after the customer has confirmed it.

The notification from the bank will alert the user about the name of the merchant, transaction amount, date/time of debit, reference number, and reason for debit.

As such, standing instructions registered on credit or debit cards for services such as Netflix, Amazon prime, Disney+ Hotstar as well as a host of other online services such as billers and insurance providers, among other things will get deactivated. However, there will be no impact of the new rules on mutual funds’ SIPs, Insurance premiums, and other recurring payments.

It will not affect one-time payments. Any payments made through net banking will remain unaffected. The issue is only with direct recurring payments on third-party merchant websites.

Impact of this policy on consumers

Firstly, two-factor authentication is a safety feature. It will ensure the user does not end up making any unapproved payments. Additionally, it will provide an option to either pay or opt-out of the auto-debit. Hence, customers will have to do a one-time registration for third-party payments.

However, every additional security layer decreases convenience. The additional burden, compliance, and adherence would not only impair customers’ buying experiences, but will also damage millions of businesses and impede the country’s fintech sector’s growth trajectory.

During a virtual consultation, the founder of The Dialogue, a technology policy Think Tank, Mr. Kazim Rizvi said, “there must be no trade-off between convenience and security – both should be achieved simultaneously for smooth online transactions”. He further pointed out that there is a need for a clear and nuanced approach with respect to the latest guidelines to cater to consumer needs in a secure and timely manner.

Also speaking on the issue, Ms. Shreya Suri, Technology Advisory Partner, Indus Law said:

“The intention of RBI with the new guidelines is to provide more agency to the consumers. However, the unintended consequences could be adverse in such a way that it may impact MSMEs, nano, and differently-abled entrepreneurs who are slowly adapting to the digital ecosystem. 29% of users are number-illiterate in India, and they’ll be left with no other option if digital payments become inconvenient. There is a need to consult consumer groups to understand the issues on the ground, a conversation with stakeholders, and an analysis of global best practices before rolling out such guidelines.”

Customers are facing disruptions since only 60% banks were reportedly able to comply with the new rules.

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Pukhraj Biala

I am an undergraduate student at Symbiosis Law school, NOIDA, pursuing B.A.LL.B. I am a problem solver who believes in reaching to a conclusion by weighing all the options and identifying the best possible one. I find Technology Laws quite fascinating and I continue to follow and learn the subject.

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