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Thursday, April 22, 2021

Explained: The RBI’s order on recurring payments on credit cards

Over the last few days, banks have started sending messages or emails to their credit card users intimating them that any standing instruction for recurring transactions will not be approved by the bank beginning April 1, 2021.

Written by Sandeep Singh , Edited by Explained Desk | New Delhi |
Updated: April 3, 2021 10:25:26 am
The fresh guidelines do provide safeguards to the customer on various aspects.

Credit card users may have given standing instructions for recurring payments to various service providers such as Airtel, Netflix, Hotstar, or Amazon Prime, but they may still have to make payment directly to their service provider beginning April 1. This is because banks and merchants are still working to adhere to RBI guidelines on e-mandate on cards for recurring transactions. Bankers say that while they are ready to offer the service and have complied with RBI guidelines, merchants are not ready yet and, until they adhere to the norms, it may lead to some inconvenience on payment. However, on March 31, the Reserve Bank of India announced to extend the timeline for processing of recurring online transactions till September 30.

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What did RBI say on March 31?

Noting that the framework has not been fully implemented even after the extended timeline, the RBI said that this non-compliance is noted with serious concern and will be dealt with separately. It added that the delay in implementation by some stakeholders has given rise to a situation of possible large-scale customer inconvenience and default and to prevent any inconvenience to the customers, “Reserve Bank has decided to extend the timeline for the stakeholders to migrate to the framework by six months, i.e., till September 30, 2021.” It further said that any further delay in ensuring complete adherence to the framework beyond the extended timeline will attract stringent supervisory action.

What has happened?

Over the last few days, banks have started sending messages or emails to their credit card users intimating them that since they are working on meeting the requirements laid down by RBI on e-mandate on cards for recurring transactions, any standing instruction for recurring transactions will not be approved by the bank beginning April 1, 2021.

This means that if you had provided an e-mandate for your Airtel mobile bill payment or Netflix monthly subscription fee etc, and it was getting automatically debited to your credit card every month, the payment will not go through that mandate beginning April 1. Customers will have to pay their bills directly to the service providers as and when they become due in order to continue getting the service.

This will continue until banks and service providers meet all the requirements laid down by the RBI for e-mandate on cards for recurring payments.

What are these requirements?

    1. Among the key guidelines, the RBI has now asked banks to send a pre-debit notification to their credit card users 24 hours before an actual debit to the credit card. This can be either through SMS or email, as chosen by the customer. The pre-transaction notification should, at the minimum, inform the cardholder about the name of the merchant, transaction amount, date/time of debit etc.
    2. Also, on receipt of the pre-transaction notification, the cardholder should have the facility to opt-out of that particular transaction or the e-mandate.
    3. There has to be a validity period for e-mandate , which will have to be provided at the time of registration of the e-mandate. The RBI has also called for certain audit-trail-related requirements that the merchant service provider and banks will have to meet.
    4. During the registration process, the cardholder should be given an option to provide e-mandate for either a pre-specified fixed value of recurring transaction or for a variable value of the recurring transaction. In case of the latter, the cardholder will provide a maximum value of the recurring transaction and this has been capped at Rs 2,000 per transaction by the RBI.
    5. A cardholder who wants to opt for e-mandate facility on the card should undertake a one-time registration process, with AFA validation by the issuer.
    6. Among other guidelines, the issuer will have to provide the cardholder an online facility to withdraw any e-mandate at any point of time, following which no further recurring transactions should be allowed for the withdrawn e-mandate.
    7. So, till such time that card issuers and merchants adhere to these norms, e-mandates cannot be given by the customers for payment to service providers.

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Does it impact standing instructions from bank accounts, given through net banking?

The RBI guidelines are only for e-mandate on cards for recurring transactions, and it does not impact the standing instruction given on net banking for utility bill payments etc. So, all standing instructions given through net banking will continue as they have been.

Do these guidelines provide safeguards?

The fresh guidelines do provide safeguards to the customer on various aspects. They offer transparency, since customers will now receive an intimation from the issuer on the recurring transaction debit 24 hours ahead of the debit. It also empowers the customer with the facility to cancel the e-mandate before the debit to the card. It also offers customers with an option from the issuer to withdraw any e-mandate at any point of time. Also, the customers will now provide a validity period for the e-mandate — it can’t be for perpetuity.

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