How to prevent auto-debit failures from 1 October

According to the Reserve Bank of India’s (RBI’s) new guidelines, customers are required to carry additional factor authentication (AFA) on all recurring payments done through their debit cards, credit cards, UPI and prepaid payments instruments (PPIs). This rule will kick in from 1 October.

“RBI has mandated all banks to comply with the guidelines and directed issuer banks to notify their customers about the changed rules and what they need to do," said Shashank Kumar, co-founder, Razorpay.

With the deadline nearing, banks have started intimating customers. “Dear customer, from 1 October 2021, auto debit payments for recurring transactions, non-compliant with the new regulatory guidelines, will not be honoured on your ICICI Bank credit or debit card, and payments will have to be made directly on the merchant website/app," ICICI Bank wrote in a message sent to customers’ phones.

This is what you should do to avoid defaulting on recurring transactions.

Additional factor authentication: Some major private banks and big merchants have already integrated the technology infrastructure needed to comply with RBI’s new guidelines.

If your bank has communicated this with you, you should visit its website on 1 October, check the list of merchants that the bank has enabled for AFA and register afresh with each merchant whose service you use to permit them to continue charging your card for recurring payments.

At the time of registration, you also need to key in the validity period and maximum amount of the standing instruction. Any payment request beyond the maximum amount will need one-time-password (OTP) based authentication at the time of transaction.

AFA is a one-time process for transactions below ₹5,000. “AFA is same as approval using OTP at the time of registration. If the amount involved is less than ₹5,000, one-time authentication is enough," said Ashish Goyal, member, Fintech Association of Customer Empowerment (FACE) and co-founder and chief financial officer, EarlySalary.

For subsequent transactions within this threshold, your bank will send you a debit notification with the amount and name of the merchant 24 hours before each payment. The notification will also contain a link that will direct you to a page that will allow you to view, modify or cancel the payment or the mandate. If you take no action on the notification, the transaction will be carried out.

For payments above ₹5,000, you will need to approve each transaction with an OTP sent from the bank.

Banks will send all the correspondence on your registered phone number and email ID. Therefore, you must ensure that your correct details are linked to your cards.

If bank is not compliant: Customers who still haven’t received any update from their banks about the change must make direct payments to service providers through merchants’ apps, websites or their bank’s net-banking facility to avoid defaulting on payments.

Also, it is not enough that your banks are ready to comply with the new regulation.

“Every merchant has an acquiring bank that accepts payments on their behalf. If this acquiring bank has not complied with the rules, your transactions will still not go through even if your issuing bank is ready for the transition," said Mihir Gandhi, partner, leader - payments transformation, PwC India.

Some banks have suggested alternatives. HDFC has informed its customers that they can alternatively pay via NPCI’s BillPay on the bank’s net banking for utility bills, postpaid mobile and credit card bills and insurance premium payments. Similarly, you can visit your bank’s website to check the alternative payment methods available.

“In case you miss to approve a transaction greater than ₹5,000, we would strongly recommend that you get in touch with your merchant/service provider and request them to initiate a fresh authorization to keep your services active," ICICI Bank wrote in its FAQ section.

It is advisable that you also contact your bank to check about how long it will take them to fulfil the new requirements so that you can be sure as to how many months you are likely to be required to make direct payments to merchants to continue getting the services.

Some large private banks such as ICICI, HDFC and Axis, along with merchants including the likes of Netflix, Policybazaar, Amazon Prime, Max Life Insurance and Hotstar, have already integrated with a common industry-wide platform.

However, it might be a long wait for customers of other banks, especially public sector ones. An official spokesperson of a fintech company working with banks on this matter told Mint that State Bank of India might take another four-five months to comply with the new rules.

EMIs, SIPs are safe: “There will be no impact on recurring payments whose standing instruction for auto-debit is directly from the bank account," said Gandhi.

This would mean that your equated monthly instalments (EMIs) on all your secured loans would not be impacted from the new rules as they are directly debited from the savings or current account.

Since auto-debit facility on systematic investment plans (SIPs) in mutual funds is also given to the primary bank via one-time mandate, or biller method, your SIPs, too, will remain unaffected.

Credit card bill, insurance premium at default risk: Auto-debit mandate on insurance premiums and credit card bills are typically given through cards. You should be extra careful about paying these two on time and in full as defaulting on either can cost you dearly.

Missing just one insurance premium can result in you losing the policy and its benefits altogether. Every insurance policy comes with a grace period of 15-30 days after the premium is due, so use this window to make the payment.

Similarly, defaulting on credit card payment will not only attract interest, but also impact your credit score.

“These two payments are not like an SIP that you can skip for one month and yet there will not be any impact on your overall investment portfolio," said Amit Suri, a New Delhi-based financial planner.