Ever since we stepped into the lockdown due to the COVID-19 pandemic, the volume of digital payments has increased significantly. The inclination towards digital payments also gained much more momentum during COVID-19 in India. According to ET reports, digital transactions soared by a staggering 33% to reach 7,422 crores in FY 22.
However, people have often fallen prey to cyber fraud and unwanted auto-debits due to the rise in digital transactions. As a result, the new RBI guidelines were released to protect end-users after multiple cases of auto-debit transactions were executed without the customer’s initiation or consent.
Let’s delve deeper.
What are the RBI guidelines for recurring transactions?
All card-issuing banks are required to comply with the new RBI guidelines, failing which cardholders will not be able to use their cards for auto-debit or standing instructions.
Per the latest guidelines issued by the Reserve Bank of India, banks will have to send card holders a pre-debit notification 24 hours before the due payment. Only then will they be able to process auto-debit transactions.
However, if the auto-transaction involves an amount more than Rs. 5000, card holders would have to approve it via an OTP for additional authentication.
Why were the RBI guidelines introduced?
The new RBI guidelines concerning recurring transactions came into effect on 1st October 2021.
With the new guidelines, card holders can:
- Get greater autonomy for controlling their recurring payments made through credit cards and debit cards
- Set the amount for recurring transactions beforehand
- Cancel services requiring recurring transactions
The new RBI guidelines aim to increase the ease of transaction and transaction security.
Who does the RBI auto-debit guidelines impact and how?
A few cardholders started facing auto-debit issues on their cards 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 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.
What happens to international recurring expenses with the RBI guidelines?
The new RBI guidelines are applicable for international recurring expenses as well.
As per its mandate, the processing of recurring international transactions with cards/prepaid payment instruments that are not in sync with the new RBI guidelines will be discontinued.
Payment gateways and lenders must comply with these RBI guidelines for domestic and foreign transactions.
What do we recommend?
We will continue to see failed recurring payments until international merchants sign up for e-mandate services from India. We recommend making a one-time payment every month for subscriptions from international vendors.
Here’s how you can ask your vendor for a payment link:
- Send an email to your vendor asking for a one-time payment link. State the problem that you’re facing clearly in the email body
- The vendor will send you a one-time payment link. They can also send an invoice. You can pay the requisite amount via credit card
- You can repeat these steps every month till international payment gateways comply with the new RBI guidelines
There you have it – a quick guide to enable recurring international transactions on your card. The RBI has extended power in your hands to start, stop or modify such auto-debits. The big advantage of the latest RBI guidelines on recurring payments via credit or debit cards that got implemented on October 1 is that you don’t have to approach merchants. No denying that it has led to disruption in the payments space, but just for how long unregulated merchants could have had their own way!