Social media is flooded with messages from harrowed customers, who are unable to subscribe to the services or products they want because their recurring payment mandate just won't work. Small business claims on social media that businesses are potentially getting affected as many customers may not want to go through the hassle of setting up e-mandates for recurring payments again to subscribe to their products and services.
Let's take a step back.
By now you must be getting repeated messages from your bank warning you that any standing instructions for auto-debit transactions will not work unless compliant with RBI
's new recurring payment rules!
Confused what they are? Here's a recap.
The New Recurring Payment Rules came into effect on October 1, 2021. They require customers to re-authenticate any standing instructions for recurring payments such as subscriptions and bill payments up to Rs 5,000.
For recurring payments above Rs 5,000, customers will be required to give their consent and go through a two-factor authentication process for every payment.
Recurring payments above Rs 5,000 that may be impacted include electricity bills, insurance premiums, web hosting platforms, SaaS providers, B2B businesses. They will all require additional-factor authentication for each payment, every time.
Here's what happened after new rules kicked in
As is the case with most new rules, the initial days have seen hiccups. Some customers, businesses have seen disruptions or faced inconvenience as the eco-system slowly aligns itself to the new requirements. Some took to social media to express their concerns.
Sanjay Singh, a customer, said, "My Dropbox subscription did not go through. Very frustrating. RBI is good to minimise fraud but not at the cost of convenience. Strike a balance."
"Subscription went through in few cases like (Linkedin, Linode, Digital Ocean) and stopped working in some. I wonder how did those few make it work." added another consumer Ronak Jain.
Why the disruptions
Simply because banks and merchants are not ready. The RBI first came out with these guidelines in 2019. It asked banks and other stakeholders to implement the framework by March 31, 2021. The deadline was even extended to September 30, 2021, after banks failed to fully implement the guidelines. But even to date, some banks are simply not ready.
Industry sources say only a handful of large private banks like HDFC Bank and Kotak Mahindra Bank are ready and functioning well when it comes to new rules on recurring payments. Many public banks- including the largest ones, smaller private banks are still in the process of changing systems to adapt to new rules. Hence, customers are facing some hiccups.
Vishwas Patel, the Chairperson of the Payments Council of India, told CNBC-TV18, “Barring some large banks, rest of the banks are not ready. Due to this, there is a lot of disruption in the market, and the failure rate is high. It seems that despite having a lot of time in hand, banks had not moved in time. Due to this, banks are working on adoption now when the deadline has passed.”
Patel added, “Recurring payments on international merchants are affected especially. This is because the Indian issuing side is banning recurring billing without second factor by those merchants who are not following the RBI process.”
Merchants have also been slow in adopting the new rules. American Express is still not compliant with new RBI rules, industry sources said.
All's not bad
While the migration may be painful in the short term, as people take time to move to the new system, the new rules may do customers good over the medium to long term.
"Every cardholder can see their transactions/subscriptions across merchants. You do not need to go to your Netflix or Amazon accounts to see your subscriptions. So now the chances of being over-charged are less," Patel explained.
"The RBI has been receiving requests from industry stakeholders to allow processing of e-mandate on cards for recurring transactions with AFA during e-mandate registration and first transaction, and simple/automatic subsequent successive transactions. Keeping in view the changing payment needs and the requirement to balance the safety and security of card transactions with customer convenience, it has been decided to permit processing of e-mandate on cards for recurring transactions (merchant payments) with AFA during e-mandate registration, modification and revocation, as also for the first transaction, and simple/automatic subsequent successive transactions,” it said.
The new rules offer transparency, since customers will now receive an intimation from the issuer on the recurring transaction debit, and empower customers with the facility to cancel the e-mandate before the debit to the card.
Some players in the industry have also capitalized on this opportunity to offer new services. BillDesk, in partnership with Visa, set up SI Hub which helps customers manage their multiple recurring e-mandates on a single platform. PayU has launched a similar platform called Zion. Razorpay tied up with Mastercard and created a platform called MandateHQ which helps banks go live with recurring payments, and also helps businesses get access to a wider customer base.
The Reserve Bank of India was yet to respond to CNBC-TV18’s query on the impact of these new rules at the time of publishing this article.