FAQs: RBI's new auto-debit rules

Q. What are the new RBI auto-debit guidelines?

The Reserve Bank of India (RBI) has issued new auto-debit guidelines that card-issuing banks should adhere to from October 1, 2021. These new rules are introduced to regulate recurring payment transactions using credit cards, debit cards, and prepaid instruments.

- As per the guidelines, any recurring transaction debited automatically using a credit card or debit card will require explicit approval from the customer in advance through an Additional Factor of Authentication (AFA).

- This means the card-issuing banks are now required to send a pre-debit message to alert customers 24 hours before the payment due date. Then, the cardholders need to approve transactions that exceed INR 15,000 via OTP (one-time password) for a successful auto-debit payment.

- On receipt of the pre-transaction notification, the customer (the cardholder) will have the liberty to opt-out of that particular transaction along with the ability to view, modify, or even cancel any auto-debit mandate set on their card.

- The cardholders shall also be provided with an option to choose and change the mode of communication (SMS, email, etc.) for receiving the pre-transaction notification.

Q. What is an e-mandate?

An e-mandate refers to a set of standing instructions, which acts as a consent form issued by an individual to a third party, allowing the third party to auto-collect recurring payments from the individual's bank account.

Businesses use e-mandates to manage recurring transactions. Because they eliminate the hassles of sending payment reminders and charging late payments to the customers, they've proven to be a win-win for both sides.

Q. How do the new auto-debit rules work?

First, the customer has to set up an auto-debit e-mandate to authorize the merchant or service provider to charge them automatically for a certain amount at a certain frequency.

To do that, the customers have to re-register each of their credit or debit cards with the merchant who provides recurring payment services, specifying the validity period and maximum amount of the standing instruction for future transactions. Then they will go through two-factor authentication to complete the registration and initiate the first recurring transaction.

Q. How do the new auto-debit rules work for recurring transactions less than INR 15,000?

For payments below INR 15,000, the cardholder will receive a pre-debit notification from the card-issuing bank 24 hours prior to the transaction, via email or SMS. It will include details such as mandate ID, transaction amount, date and time of debit, and the reason for debit.

There is no need for the customers to approve the transactions explicitly through Additional Factor Authentication (AFA). However, if they wish to cancel, pause or modify the recurring transaction e-mandate, they can do so with the options provided in the pre-debit notification.

Q. How do the new auto-debit rules work for recurring transactions more than INR 15,000?

Recurring transactions above INR 15,000 require prior approval from the customer. Here, an additional factor of authentication (AFA) will be applied, whereby banks are required to send a one-time password (OTP) to the customer every time a payment above INR 15,000 is to be made. Only after the customer authorizes the payment by entering the OTP does the transaction go through.

Q. What would happen if the cardholder does not approve the transaction?

In case the cardholder doesn't approve the transaction, the corresponding bank will decline the transaction. The customer would have to pay the merchant directly through their site or app. The issuing bank won't be liable for any claims related to non-payment or late payment charges levied by the merchant.

Q. What happens once the auto-debit transaction is successful?

When the payment is successful, the post-transaction message will notify the customers of the merchant name, transaction amount, date/time of debit, reference number of the transaction or e-mandate, and the reason for auto-debit.

Q. Will cross-border transactions be affected?

Yes, the new auto-debit rules will also affect cross-border transactions.

The new auto-debit guidelines issued by RBI apply to both domestic and international recurring transaction payments. Hence, the auto-debit mandate set up on any credit or debit card, either domestic or international, will not be processed without the Additional Factor Authentication (AFA).

Q. What is AFA?

Additional Factor Authentication (AFA) is a security process that requires users to verify their identities in unique ways to access their bank accounts online.

AFA requires the user to provide a password as the first factor and a security token or a biometric token (such as a dynamically generated OTP or fingerprint/facial scan) as an additional factor. This way, even if the user’s password is compromised, the account cannot be accessed without the second factor.

Q. What kinds of transactions are likely to be impacted by RBI's new auto-debit rules?

 Auto-debit or auto-credit mandates for making recurring payments for subscription renewals on digital service platforms, orders from e-commerce sites, utility bills, and similar kinds of transactions are likely to be affected by the RBI's new auto-debit rules.

Hence the automatic recurring payments for various OTT platforms, music apps, and other services will not work if the card-issuing bank is not compliant with the new RBI regulations.

Q. What kinds of services are less likely to be affected?

Any standing transactions using customers' bank accounts for purposes like mutual funds, SIPs, equal monthly instalments for loans, and insurance premiums will not be affected by the RBI's new auto-debit rules.

Q. Why has RBI announced these new guidelines?

RBI has framed the new auto-debit rules to protect customers from online fraud, especially on third-party platforms where payment-related fraud is more prevalent. These rules are expected to provide customers with greater control while undertaking recurring transactions, enhance customer convenience and establish transparency in the entire process.