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Explained: RBI’s New Auto-Debit Policy

Do you use your debit cards or credit cards for repeated auto-debit payments?

If yes? Then you must know that as per RBI’s new rule, from 1st of October, all digital payment platforms and banks will seek your permission before paying bills through credit cards, debit cards, or even UPI.

What changes after this new policy, how it will impact you and me and what does this mean for banks? We break down RBI’s new auto-debit policy.

RBI’s Auto-Debit Policy

Under the new additional factor authentication rules, a bank is required to send a notification to the customer at least 24 hours before the auto-debit payment is to be deducted and allow the debit only after the customer has confirmed it.

However, this auto-debit mandate is only for payments that are above Rs 5,000.

The notification will inform the cardholder about the name of the merchant, transaction amount, date/time of debit, reference number of transaction/ e-mandate, reason for debit, i.e., e-mandate registered by the cardholder. 

You should ensure that your correct mobile number is linked with your debit/credit cards so that you can receive a notification for approval.

However, note that there will be no impact of the new rule on your mutual fund SIPs, insurance premiums and other recurring payments if the standing instruction for auto-debit is from your bank account.

What Payments Will Get Impacted?

This new rule will impact users who have given auto-debit mandates for recurring payments from their debit/credit cards and/or mobile wallets for payments.

Do keep in mind that additional factor authentication will be required for recurring transactions and not for ‘once-only’ payments. 

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Remember, any payments made through net banking channels will remain unaffected. This means, your regular EMI payments on home loans, auto loans or mobile and gas bill payments using bank websites will not get affected. The issue is only with direct recurring payments on third-party merchant websites. 

The standing instructions must be for payment from your debit/credit card. 

 Any recurring payment exceeding Rs 5,000 will require approval from the customer before it is charged to their debit card/wallet and debited from the bank account or wallet.

Impact On Consumers

First of all, two-factor authentication is a safety feature and it will ensure you don’t make any unapproved payments.

Additionally, it will provide an option to either pay or opt-out of it.

Customers will have to do a one-time registration for third party payments. Else, customers will have to go to the bank websites and make payments directly. 

On the due date, OTP or any other authentication mode will be active and the customer will accordingly make the payments.  

Since all the standing instructions will not be processed, mandate registration, modification and deletion will require additional factor authentication.

A large number of credit and debit card users set auto payment instructions for goods and services ranging from electricity and gas to music and movie subscriptions, and the new rules could lead to chaos for millions of users.

So, if you have subscribed to services including utility bill payments and insurance premiums that use recurring payments on your credit or debit card, then it will not be allowed from 1st October 2021 onwards. 

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However, existing subscriptions will also not be cancelled.

Changes For Banks

For banks and payment institutions, the new rules pose a major challenge. It will require them to overhaul existing recurring payment flows and maintain standardisation for smooth execution of payments.

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