Auto-Debit Norms

Auto-Debit Norms

Subject – Economy

Context – Banks, merchants working on a common platform

Concept –

• Banks are working on a common industry-wide platform to comply with the Reserve Bank of India’s norms on auto-debit which will come into effect from October 1.
• Bill Desk and Razorpay are the two companies working with banks to meet the auto-debit norms.
• Under the new rules, banks have to notify the customers 24 hours in advance in case of an upcoming auto-debit transaction.
  • Simply put, customers have to provide additional factor authentication (AFA) by approving the auto-debit requesting in advance.
  • The transaction will not be completed if customers do not approve or reply to the pre-debit notification.
• In addition, auto-payment transactions above Rs 5,000 will require customers to authenticate such payments manually with a one-time password (OTP).
• The new rule, however, will not impact e-NACH and UPI autopay transactions.
• Customers should note that only standing instructions on cards will be impacted and not standing instructions given to banks by customers. Therefore, EMIs and SIPs payments are unlikely to face turbulence.
• The auto-debit rules are likely to impact customers who make card auto-transactions for bill payments, OTT subscriptions, and other online services.
• Internet merchants including Google, Facebook, YouTube have notified customers that the new rules may lead to disruptions in e-mandate based recurring payments.
• Therefore, customers of banks that are not yet compliant with the guidelines may have to make manual payments after October 1 as auto-payments will stop working.

What is the process?

• Banks will send a notification to a customer via SMS and email before the transaction. The notification will contain details about the name of the merchant, transaction amount, date of debit, reference number of transaction and the reason for the debit.
• The cardholder will have the option to either disapprove or approve the transaction. The rule was introduced by the RBI to make the auto-debit process secure and provide more flexibility to customers.
• A customer should ensure that the correct mobile number is linked to the debit/credit cards. Otherwise, the customer may not receive the message for additional authentication.