Have you ever received an SMS from your bank about an auto-debit on your card, and you don’t remember what the auto-debit is for? If this problem resonates with you, then there is good news! The Reserve Bank of India (RBI) has introduced guidelines to card-issuing banks to regulate the usage of credit and debit cards for processing auto-debits.
In the following article, we have explained the RBI guidelines in simpler terms, the timelines to comply with them, and how they affect cardholders, businesses and banks.
What are these RBI guidelines, and when do they come into effect?
All card-issuing banks are required to comply with these guidelines by 30 September 2021. Cardholders will not be able to use their cards for auto-debit or standing instructions after the deadline. Given below is a short summary of the guidelines:
- Cardholders need to authorise the feature through an OTP (technically known as Additional Factor Authentication) while signing up for an auto-debit facility with any website or service provider.
- Banks need to:
- Send cardholders a pre-debit notification at least 24 hours before the actual debit with an option to cancel/pause the auto-debit
- Provide an online facility for cardholders to cancel/pause/ manage auto-debits that are signed up using their cards.
- Send a post-debit notification to the cardholder once the auto-debit is processed.
- Ensure that customers are provided with an OTP to approve every auto-debit that is greater than Rs.5,000.
- Set up a redressal system to address customer grievances related to auto-debits.
Who should comply with the guidelines and by when?
- Who should comply? – Card-issuing banks decide if they want their cardholders to use the cards for auto-debits or not.
- By when should banks comply?– While the RBI issued the guidelines in 2019, they were strictly enforced in March 2021 only. A directive has been issued to all banks to comply with the guidelines by 30 September 2021 to process auto-debit payments on cards.
Who does the new RBI auto-debit guidelines impact and how?
A few cardholders started facing auto-debit issues on their cards from April 2021 since their card-issuing banks were not complying with the RBI guidelines. Since renewal on existing subscriptions or auto-debits stopped working, service providers dependent on subscriptions have been sending manual payment reminders or payment links to collect payments from customers.
Many subscription-based businesses were hit hard from the beginning of April 2021. Cards as a payment came to a standstill, and businesses could not onboard new customers using cards. Many of them showed alerts on their website that stated ‘Cards are not supported for recurring payments’ or that a particular payment method was unavailable for the subscription.
So, subscription businesses were forced to explore alternative payment options to onboard new customers and get them to sign-up for auto-debits. UPI became the go-to payment method for auto-debits, followed by eMandate linked to Bank accounts for few businesses.
Way forward for Cardholders starting 1 October 2021
- In case a bank does not comply with RBI guidelines by 30 September 2021, then cardholders of such banks will not be able to use their cards for signing up for auto-debit or standing instructions on cards
- For some cardholders, since some existing auto-debits/ standing instructions will not be compliant with RBI guidelines, you may be receiving alerts from your respective banks or subscription service providers that existing auto-debits will not work, and you will be required to use another payment method such as UPI or use a particular bank’s cards to subscribe afresh so that auto-debit payments or standing instructions continue to work and are compliant with RBI guidelines
Have a look at a sample of error messages that customers have received from a few subscription-based businesses:
Payment Alert by Netflix
Starting October 1, 2021, new payment regulations require additional authentication steps to protect your card payments. See below for more details
Recurring Payment Methods
If you choose a recurring payment method, Netflix may ask you for a one-time re-authentication 1 – 7 days before your next billing date, then your Netflix membership will automatically be charged each month.
Local Credit and Debit Cards
Debit and credit cards must be enabled by your bank for recurring e-commerce transactions.
NOTE: You may need to enable your card for international transactions. International cards are only accepted for members currently paying with an international card
Visa-branded cards from the following banks:
- HDFC Bank
- ICICI Bank (debit only)
- Bank of Baroda (debit only)
We accept UPI, but your bank must support recurring payments through UPI. If the charge is declined, please choose a different payment option.
Payment alert by Facebook
On Account of the recent RBI eMandate, we may be unable to accept new standing instructions on cards. In case your payment method is a card that is expiring on or before midnight on the last day of this month, you may need to move to a manual payment method that is prepaid (UPI, Net Banking and PayTM)
Sample Messages from a large bank
Attention! From 1st Oct’21, as per RBI guidelines on e-Mandate on cards, we will decline Non-Compliant recurring txn at Merchant Web/App on your HDFC Bank Credit/Debit Card. Alternate Solution – Retry regular payment on Merchant Web/App authenticated via OTP or Pay via AutoPay in BillPay on our NetBanking for your Electricity /Water/Gas/ Landline/Postpaid mobile/Broadband/Insurance billers. Have queries? Click: hdfcbk.io/a/xxPa26v TnC
Way forward for businesses from 1 October 2021
As Razorpay we have helped 5 banks to comply with the RBI guidelines and we are also in the process of getting 7 more banks live through our banking solution – MandateHQ. Learn more about MandateHQ here.
For banks that have not yet complied with RBI guidelines by 1 October 2021, businesses may be required to:
- Reach out to customers and inform them about the RBI guidelines and inability to process auto-debits on their existing subscriptions
- Use alternate payment methods such as UPI Autopay and get customers to sign up for new auto-debits.
- Collect one-time payments in certain cases in case the auto-debit is up for renewal or will expire soon.
While there may be some transition issues for businesses when the guidelines start to take effect (from 1 October 2021 onwards till the majority of the banks go live), these are some advantages to this exercise in the long run:
Reach out and acquire a wider customer base:
Now you can delight those potential customers who were missing out on subscribing to your products since they only owned debit cards.
- Gain trust and instil confidence in customers:
As they will have more control over the auto-debits and manage them in a better way.
- Improve customer retention and engagement:
Now you can up-sell and cross-sell more products since your customers are more confident of their auto-debit payments.
How Razorpay helps businesses comply with RBI guidelines
As a leading player in the digital payments space, Razorpay’s aim is to power the recurring payment ecosystem and improve the experience for all its stakeholders.
This is why we built MandateHQ, a plug-n-play API solution for banks to integrate and immediately comply with RBI guidelines. Razorpay Subscriptions helps businesses adopt subscription as a revenue model and process auto-debits and thereby acquire more customers via cards (as and when banks keep going live on MandateHQ). Razorpay has already helped 5 Indian banks to comply with the new RBI guidelines and is in the process of getting 7 more banks to go live soon through MandateHQ.
To conclude, the recurring payments ecosystem is undergoing a massive change due to the RBI guidelines and all the stakeholders (banks, businesses, cardholders, and payment aggregators) are impacted in one way or the other. It is only a matter of time for most of the banks to comply with RBI guidelines, and there is no doubt that Subscriptions will be leading the way as the most preferred revenue model for many businesses.