RBI Extends the Deadline for Auto-Debit Rules till September 30: What Is It Need? What Will Be Its Impact On Customers?

RBI

The Reserve Bank of India (RBI) has decided to extend the deadline for the banks to migrate to the new framework of auto-debit transactions by six months to September 30, 2021. Earlier, the deadline was set to expire on March 31, 2021.

The RBI decided to extend the deadline because the new framework was not fully ready and implemented by the banks. The RBI doesn’t want customers to undergo scams and fraud activities. Below is a simple explanation of this new rule and related queries that what steps the banks will take.

What is this all about?

Over many years, the Reserve Bank of India has been emphasizing banks to safeguard third-party customer transactions and has also asked to make sure all the payments are secured. The RBI said that it is the duty of the bank to inform the customer whenever an auto-debit takes place on third-party merchant websites so that the customer has an idea of what is happening with his/her account.

To bring this into action, the RBI issued two circulars, one in August 2019 and the other in December 2020. The second one that was released in December 2020, was actually a reminder to all the banks of the first one. What this finally concludes is that the banks have to seek customer’s permission before executing each transaction that involves third-party payments.

Is it for all types of payments?

This rule will only apply to all types of auto-debit payments which include credit card, debit card, UPI, PPI, including wallets payment. Auto debit payments will include bills, renewal of subscriptions, or any other reoccurring payment that stores your payment details. Most of these payments will be the renewal of your OTT subscriptions to Netflix, Amazon Prime Video, Spotify, iTunes, postpaid mobile, and other platforms. This new rule by the RBI also includes self-deduction by insurance companies and utility bill payments like gas, electricity, etc.

What remains unaffected?

It was clear from the RBI’s side that any payment that will be made through net banking will remain unaffected. That means, your regular EMI payments on home loans, auto loans, or utility payments using bank websites will not be affected by this new rule. This issue is only related to third-party merchant websites.

Why there is a need to do this?

According to the RBI, it is easy for fraudsters to have access to customers’ accounts for auto-debit transactions. That is why the RBI came up with this plan so that banks have control over the auto-debit payments on merchant sites and on the other hand customers will also know about their payment transactions. Whenever a customer makes a payment transaction on a third-party website, a message pop-up on the screen for automatic deductions in the future. Many times, customers opt for this and that is what becomes a major concern for the RBI as the body thinks that these transactions are beyond the probe by banks.

What will be its impact on customers?

From October 1 onwards, the bank needs to send a notification or SMS to the customer five days before and at least 24 hours before the payment date for recurring payments through third-party merchant websites. Like this, the customer will be informed about the scheduled payment and asking if he/she would like to opt to pay or not.

What about transactions above Rs. 5,000?

The auto-debits that will be above Rs. 5,000 will lead to the sending of an additional one-time password to the customer and this is an additional security method.

Does this mean customers have to pay an additional fee for auto-debit transactions?

There is no certainty on this yet. That might be a possibility. According to some sources, banks might charge for facilitating or for operating an additional platform such as Billdesk.

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