As of October 1, 2021, the Reserve Bank of India (RBI) has officially enacted new rules governing recurring transactions. These rules are designed to protect consumers from online fraud that is often present when setting up recurring payments with third-party vendors. The move has been expected for some time, but consumers still have many questions about it.
The new rules will affect you if you’re in the midst of a debt payoff strategy like the debt avalanche method, which encourages participants to place credit card and loan payments on autopay to prevent missed or late payments. It will also affect recurring subscription payments and in-game app payments that are debited monthly. Here’s a full explanation.
How do the New Auto Debit Rules Work
The simplest way to explain this is that the bank will now require that you verify a recurring debit before they authorize it. They will only execute that transaction after your approval and the payment instrument (credit or debit card) must be registered with the issuing bank. This is done by two-factor authentication when the recurring payments are set up.
If an invoice is over Rs 5,000, the bank will share a one-time password (OTP) for the consumer to authorize the transaction. Smaller transactions will be authorized by confirming through an email that will be sent prior to the transaction date. If a transaction is non-compliant with the new rules, it will be declined by the bank. Expect some confusion as this is implemented.
The new system is expected to eliminate instances of fraud where customers are charged a subscription fee after they’ve already canceled. It will also alert consumers to fraudulent attempts to charge their credit cards. With eCommerce numbers rising at an unprecedented rate, this step was viewed as necessary by RBI and other banks in India.
How will this Impact You and Your Payments?
Fraud prevention is an admirable goal, but this new system will also cause some disruption to your personal finances. Most of us put utility and debt payments on autopay to avoid disconnection or default. If you miss a confirmation request from the bank, you may end up missing one of those payments when it’s due. That could cause some problems.
With the old system, consumers were able to complete transactions at multiple payment points, including eCommerce and food ordering sites. With the new rules, recurring payments are routed through the bank that issues the card. The first transaction is authorized using two-factor authentication. Additional recurring payments will need a one-click authorization.
Like any other system, once it becomes second nature to use it, resistance will dissipate. There’s always push-back in the beginning, but the benefits of having a verification system in place for recurring payments are clear. Consumer inconvenience is a small price to pay for an elevated level of security on credit and debit card transactions.