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RBI’s Recurring Payment Policy: What Are Start-up Leaders Saying?

Getting timely updates and regulatory checks to customers will help bring India to an era of a digital-first economy, driven by a safer payment ecosystem facilitating convenience at every touchpoint for the consumer.

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Digitization has been a buzzword for a while now, with the private sector readily onboarding the ‘Digital India’ and ‘Atmanirbhar’ bandwagon. While we use technology in our day-to-day lives, it is noteworthy that there are several legal nuances that impact the end-user directly or indirectly. Given this fact, it becomes necessary to understand how the Reserve Bank of India (RBI) and its digital payment policies impact us.  

What is the RBI's new order on recurring payments? 

RBI has earlier issued a set of rules for processing e-mandates on recurring online transactions. It has come out with a framework called AFA (Additional Factor of Authentication), which will be mandatory for all recurring transactions below INR 5,000. This will be applicable across the spectrum, be it on credit cards, debit cards, UPI, and any other Prepaid Payment Instruments (PPI). If the transaction is above INR 5,000 the customer will have to verify it with an OTP-based authentication. To register for an e-mandate, the customer will have to register with AFA via OTP, following which the client will have to provide validity of the e-mandate and recurring transactions.  For example, recurring automatic transactions for OTT services every month happen via a pre-agreed e-mandate.  

Post this, the banks are required to send an email or an SMS regarding the mandate 24 hours before first transaction. It is required that all stakeholders ensure full compliance with the framework latest by September 30, 2021. The idea is to ensure customer safety in an era of cyber hacking via recurring transactions. This directive is applicable to all recurring payments which were earlier debited automatically from the customer’s card/account/digital payment service.

What is its impact? 

The entire process may seem tiresome; however, the end-user must understand that a multi-layered security system will ensure greater safety. One of the key pillars of success is public acceptance of any scheme or modification the government is ushering. Getting timely updates and regulatory checks to customers will help bring India to an era of a digital-first economy, driven by a safer payment ecosystem facilitating convenience at every touchpoint for the consumer. Razorpay’s Co-founder and CTO Shashank Kumar, shares his thoughts on how these guidelines will impact consumers and the digital infrastructure of the country. “These measures will act as a catalyst in re-emphasizing the need for a secure system that can enable consumers to place their trust in the digital economy. Moreover, this will serve as a boost to the burgeoning subscription economy in the country, across sectors while protecting them against financial fraud.”   To date, recurring payments have largely been mandated on credit cards while debit cards have not been used as widely. The new guidelines bring much-needed regulatory clarity on having debit cards support recurring payments. Industry synergies between banks and fintech companies because of this new mandate will facilitate recurring payments for over 900 million debit cardholders in India.

Payment gateways across the spectrum are updating their technological facilities to deploy additional resources. Emphasising this development, Manas Mishra, Chief Product Officer, PayU says, “To ensure technology readiness under RBI’s auto-debit guidelines, effective from Oct 1, 2021, PayU has, therefore, created a recurring payments platform known as Zion. It provides multiple features with additional factor authentication, notifications to customers and dashboard for subscription management. It is designed to adhere to all aspects of subscription payments with minimum integration effort required from banks. PayU is currently working with key banking institutions and issuers to enable them to integrate the new platform.”

Given the steps taken by these platforms, the start-ups are clearly in favor of the new RBI guidelines. Realizing the potential of digital security, various banks like ICICI and HDFC have already started contacting customers regarding the new set of guidelines. As per HDFC’s website, a common industry platform is being developed and will go live soon.  

While there might be issues regarding the initial adoption of new technology, it is only going to be beneficial for everyone in the long run. Supporting this train of thought, Amith Agarwal, Founder, Agribazar notes, “In the long run, the entire banking & merchant ecosystem working towards a smooth transition will benefit.  The security and safety of online transactions are paramount for any digital ecosystem to grow and thrive. Rural customers will benefit from this measure as they are also adopting a digital payment mechanism.” In a digital-savvy age, RBI’s guidelines are in tandem with the upcoming times, not to mention the digital inclusivity we will witness with these guidelines.  

The confidence of prominent industry players bears testament to the fact that this new system may need getting used to, but it is bound to be beneficial in an increasingly digital era.