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New Rule For Recurring Transactions: Check What Does The New RBI Rule Say


According to an RBI circular first released in December 2020, banks are likely to refuse auto payments from April 1 since all recurring transactions using cards and prepaid payment services will now allow an additional layer of authentication. A one-time password will be used for transactions above Rs 5,000. Customers will be alerted five days before an automatic payment is set, and the process will only proceed if the customer approves it. If banks fail to allow automatic payments, customers will have to execute their bill payments manually. Bills and subscription facilities such as OTT platforms, media, utility, and postpaid services are paid using recurring mandates on debit/credit cards. Payment rejection is supposed to trigger a massive crisis, with forecasts estimating that about Rs 2,000 crore transactions could fail as of April 1. UPI transactions, on the other hand, will be exempted by the new law. Due to contractual agreements, third-party payment providers have also refused to share customer details with banks, exacerbating the crisis. Although the central bank has rejected to extend the timeline, the crisis is likely to be settled in the upcoming days. Here are the few key things to note about the new law and how it can influence you.

New Rule For Recurring Transactions: Check What Does The New RBI Rule Say
  • In August 2019, the Reserve Bank of India (RBI) released a circular to all scheduled commercial banks, card payment systems, prepaid instrument providers, and the National Payments Corporation of India (NPCI) about the forthcoming regulation for an additional factor of verification on recurring transactions.
  • All recurring transactions will require additional authentication from the customer from April 1 respectively.
  • Not only will the regulation influence banks and financial institutions that provide credit cards, debit cards, and other prepaid payment services, but also mobile payment wallets and platforms that support UPI-based payments.
  • The law was proposed to relate to recurring transactions of up to Rs. 2,000 at first. The RBI, on the other hand, declared in December that, in response to stakeholder demands, it had agreed to raise the cap on recurring transactions not having an additional factor of authentication (AFA) to Rs. 5,000. A one-time password (OTP) will be required for all transactions above Rs. 5,000.
  • The banks also set a March 31 deadline for enforcement, according to an RBI circular released on December 4 that said, "Processing of recurring transactions (domestic or cross-border) using cards / PPIs / UPI under arrangements / practices not compliant with the aforesaid instructions shall not be continued beyond March 31, 2021."
  • The new law will mandate banks and payment platforms that provide recurring transactions to give consumers a pre-transaction update at least 24 hours before the first transaction is set to be debited until it is enforced. The user can pick the mode of confirmation (SMS, email, etc.) while activating the e-mandate.
  • Customers' permission will be required for the confirmation, after which the issuer will be free to continue with the payment. An additional factor of authentication (AFA) may be not required for potential recurring transactions.
  • All automatic payments are likely to be declined by banks, forcing customers to make bill payments manually. Banks have already begun alerting customers that they will not be able to accept recurring payments, suggesting that customers will have to make transfers manually before the issue is resolved and authentication is issued.
  • The new law is likely to affect firms that often use auto-payments for recurring charges, in particular to end users.
  • The central bank has rejected extending the time limit, but it is estimated that the case will be settled in the upcoming days. Banks and payment systems are yet to say if they are prepared to work under the new rule. Additionally, automatic payments across banks and wallets are likely to have some issues initially.
  • Due to a new Reserve Bank of India (RBI) law, auto and recurring payments of your mobile phone, utility bills, and subscription charges for over-the-top (OTT) platforms are likely to be disrupted from April 1.

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