Leading private banks won't support auto-debit payments from April 1 because they need more time to comply with RBI's new mandate

• Any automatic recurring payments may not go through starting tomorrow as the Reserve Bank of India’s (RBI) new mandate for additional factor authentication (AFA) kicks in.
• This means that users will have to give the go-ahead, at least once, for every auto-debit payment.
• But, banks aren’t ready with the required infrastructure to make that happen and had asked RBI for an extension last month.
• Without AFA in place, they could attract a fine of ₹5 lakh per failed transaction.

Your automatic recurring payments may not go through starting today. This is because banks aren’t ready with the required infrastructure to meet the Reserve Bank of India’s (RBI) new mandate that requires additional factor authentication (AFA), which kicks in tomorrow, April 1.

Simply put, the new norms require banks to inform customers in advance about auto-debit payments that use debit cards, credit cards, Unified Payments Interface (UPI) and other prepaid payment instruments (PPI) below ₹5,000.

Customers will then need to approve the transaction in order for it to be processed. Once the initial approval is received, transactions thereafter will be automatic. But getting the initial approval is for each and every auto-debit transaction is where the banks run into a barrier.

Any transaction above the ₹5,000 limit will still require a one-time-password (OTP).

“To avoid any disruption in delivery of goods and services, starting 1 April, 2021 we request that you make payments directly to the service providers for your bills as and when they become due,” American Express said in a notification to customers. Similar messages were also sent out by other banks like Axis.

This means payments for over-the-top (OTT) subscriptions — like Netflix, Disney+ Hotstar, Amazon Prime Video and others — utility bills, phone recharges, cable bills and other transactions are likely to be impacted.

Why are lenders wary of the new regulations?

Banks want digital payments to be convenient. However, they also don’t want to pay millions in fines for not complying with the apex bank’s new mandate. According to the RBI’s circular, banks will be fined ₹5 lakh for instance of a lapse.

"Everybody has understood the seriousness of it because it is ₹2,000 crore a month business, as per PCI estimates. We hope that the cycle is not broken and the end consumers and merchants are not inconvenienced," Vishwas Patel, chairperson of Payments Council Of India (PCI) told PTI.

What’s the back story?

Initially, payments worth upto ₹2,000 were eligible for being debited automatically. The limit was later raised to address payments worth upto ₹5,000 in December 2020.

However, there was a catch in the new notification. It called for AFA. As per the RBI, banks and payments platforms offering recurring transactions will have to send a notification to customers at least 24 hours before the first transaction is debited. This could be by email or SMS depending on the preferred mode of communication that the customer opted for at the time of registering for recurring payments.

Axis, HSBC, Visa and Mastercard wrote to the RBI in March to push back the deadline for putting in place the new system that will alert customers 24 hours before the first transaction is debited, according to the Economic Times.

They also asked the RBI to exclude transactions against pre-existing standing instructions and those with international merchants.

However, the request seemed to have fallen on deaf ears. The RBI’s justification is that the new regulations are a step to bolster safety and security of card transactions. But, according to banks, being unprepared for the change could potentially erode customer confidence in digital payments.