Millions of Indian bank customers are expected to face a huge disruption as their recurring auto-debit payments for various services may not go through due to the new rule by the Reserve Bank of India (RBI) starting April 1.
Telecom service providers, electricity companies, and OTT (over-the-top) platforms will be affected in the country. As per estimates, payment volumes worth over Rs 2,000 crore ($273.97 million) for retail customers, MSMEs and corporates will be affected in April unless the RBI extends the deadline before March 31, 2021.
The new rules require banks, card networks and online platform companies to enable additional factor authentication (AFA) for recurring payments through debit and credit cards.
Under the rule, Indian banks are required to send a notification to their customers five days before the payment is scheduled to be deducted and go ahead with the debit only after getting a nod from the customer.
Banks are also required to send a one-time password to customers for recurring payments above Rs 5,000 ($68.7).
According to a report by the Economic Times, major banks and vendors have said that they are not ready for the new system which will come into effect from the new fiscal year FY22, suggesting that automatic monthly payments through debit and credit cards will fail for various services,
The report added that major banks like HDFC Bank, ICICI Bank, Axis Bank, State Bank of India (SBI) and card operators like Mastercard and American Express have already started notifying network partners of their inability to process recurring mandate-based payments. They have also started informing customers suggesting alternative modes of payment for various services.
Customers will now have to visit individual merchants’ payment pages to pay bills or continue subscriptions until banks and merchants come up with an alternative, the report said, adding that payments through other means such as NPCI platforms won’t be affected.
The Internet And Mobile Association of India (IAMAI), the representative body for technology and digital service providers, said that most major banks had not taken requisite steps to comply with the central bank’s requirements for activating registration, tracking, modification and withdrawal of e-mandates under the new rules.
“Industry consultations suggest that most major scheduled commercial banks do not have upgraded capacities to comply. Due to this, the other participants in the ecosystem like acquirers and card networks have not been able to follow the obligations under these circulars,” the IAMAI said in a statement.
A senior bank executive told the publication that some banks are ready. Still, a few large merchants are refusing to share consumer data as it is not part of existing contractual agreements. Notably, RBI has already declined Indian Banks’ Association (IBA) request for an extension on March 26.