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RBI Extends Timeline for Processing of Recurring Online Transactions

Ashish M. Shaji

| Updated: Apr 08, 2021 | Category: RBI Notification

Recurring Online Transactions

In a major announcement, the Reserve Bank of India extended the timeline for processing of recurring transactions by six months to 30th September 2021. With a number of banks, including the top lenders failing to comply with the directives, the Reserve Bank decided to extend the implementation date of guidelines for recurring online transactions. In this article, we shall have a good look at this development.

Background

In August 2019, the RBI had issued a framework for processing of e-mandates on recurring online transactions. This framework was initially applicable to cards and wallets, but the framework was extended in January last year to cover unified payments interface transactions also.

Additional factor of authentication requirement has made digital payments safe and secure in India. With the customer safety and convenience in the use of recurring online transactions, the framework mandated the use of Additional factor of authentication during registration and first transaction (with a relaxation for subsequent transactions to a limit of 2000 rupees, since enhanced to 5000 rupees), and pre-transaction notification, facility to withdraw the mandate, etc.

The main purpose behind this framework was to protect customers from fraud and bring about customer convenience. Based on the request from the Indian Banks’ Association for an extension of the timeline to 31st March 2021 to allow banks to complete the migration, the RBI[1] advised the stakeholders in December last year to migrate to the framework by 31st March 2021. Hence, enough time was provided to the stakeholders to comply with the directions.

However, it was noted that the framework was not fully implemented even after the deadline was extended earlier. The RBI stated that this non-compliance has been noted with serious concern and would be separately dealt with. It further noted that the delay in implementation by some stakeholders gave rise to a situation of possible large scale customer inconvenience and default. Therefore the Reserve bank, with a view to prevent any inconvenience to customers, decided to further extend the timeline for stakeholders to migrate to the framework by six months time means till 30th September 2021.

RBI Recurring Online Transactions: Essential Points to note

The following points may be noted:

RBI Recurring Online Transactions
  • From the beginning of October, if you have set the option of auto payment for recurring transaction, you will require additional authentication, as per the rules issued by the Reserve bank.
  • As a relief for bank customers, the RBI has extended the limit of recurring transaction to 5000 rupees.
  • It means if you have recurring auto payment of more than 5000 rupees, you will receive an OTP from your bank, and after the OTP is authenticated, the payment will be deducted.
  • The new RBI rules shall apply on transactions performed using all kinds of cards. It means when you have registered debit card or credit card for auto payment, you would be required to Additional Factor of Authentication in case where the transaction is worth more than 5000 rupees.
  • All kinds of prepaid payment instruments, including wallets, have been included under the ambit of new RBI rules. It means that any recurring payment of more than 5000 rupees through this will need additional authentication.
  • The reserve bank has in the past introduced many safety and security measures for payment through card, and now UPI has also been included under the requirement of additional authentication.
  • As per the new rule of the Reserve bank, it will allow banks to send notification to their customers before 24 hours to the auto payment for recurring transactions.
  • Customers would be provided with an option to select the mode of notification that they wish to receive at the time of registering the e-mandate for recurring auto payment. 

Recurring Online Transactions: Are banks ready for this change?

For banks and payments institutions, this change has been nothing short of a stiff challenge where they are required to overhaul existing recurring payment flows and maintain standardization for smooth execution of payments.

As per executives at fintech firms stated that the industry sought another extension because of the infrastructure burden on merchant partners, banks, and payment processors. They maintained that banks have an arduous task that are already reeling with infrastructure outages to now upgrade their systems and bring about standardization of payment flows for Reserve bank’s new mandate for recurring payments. Moreover, in case of any fault in the system increases payment failure risk, which would affect the customer trust on recurring payments. 

HDFC claimed that it completed developing a common e-mandate platform and is working jointly with merchants to make it live for its customers at the earliest.

An official of the State Bank of India stated that the bank does not have an auto-charge facility on its debit cards and is now putting in place the new framework.

Conclusion

The Reserve Bank of India, as a one-time measure, has extended the timeline to ensure full compliance with the framework. It may be noted that during the extended timeline, no new mandate for recurring online transactions would be registered by stakeholders unless mandates are compliant with the framework. RBI warned that any further delay in adhering to the framework beyond the aforementioned timeline would attract stringent supervisory action.

Read our article:Extension of timeline for non-bank Payment Aggregators: RBI Notification

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Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on criminal and corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

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