Auto Debit Transactions
The central bank relented on Wednesday after much hand-wringing by banks and payment companies over the March 31 deadline for enabling the additional factor of authentication (AFA) process for auto debit transactions. The framework’s latest implementation deadline has been set for September 30, 2021. The Reserve Bank of India (RBI) expressed its frustration with system participants by announcing that it would release a circular detailing penalties for non-compliance. “This non-compliance is taken seriously and will be addressed separately.
The delay in implementation by some stakeholders has created a risk of widespread customer inconvenience and default,” RBI said, adding that the deadline has been extended solely to avoid customer inconvenience. “Any further delay in ensuring full compliance with the process beyond the extended timeframe would result in harsh supervisory action. The Reserve Bank has released circular advising of the above today,” the central bank said.
The Reserve Bank of India (RBI) published a system for processing e-mandates on recurring auto debit transactions in August 2019. The platform, which was initially limited to cards and wallets, was expanded in January 2020 to include Unified Payments Interface (UPI) transactions and auto debit transactions. According to the RBI, the AFA requirement has made digital payments in India safe and stable.
The system required the use of AFA during registration and the first transaction (with relaxation for subsequent transactions up to a cap of Rs 2,000, which was later increased to Rs 5,000), as well as pre-transaction notification, the ability to revoke the mandate, and other features to improve customer comfort and safety when using recurring auto debit transactions. The framework’s main goal was to protect consumers from fraudulent transactions while also improving consumer comfort, according to the RBI. The deadline has been extended for the second time at the request of banks.
The regulator had previously advised stakeholders in December 2020 to migrate to the system by March 31, 2021, based on a request from the Indian Banks’ Association (IBA) for an extension of time until March 31, 2021, to allow the banks to complete the migration. Banks were all set to miss the March 31 deadline, with some already informing customers that auto debit from debit and credit cards will be disabled on April 1, 2021.
Customers are being asked to make monthly payments via the respective service providers’ websites. For banks that have already started migrating to the new system, this could still be possible. Most consumers, on the other hand, should rest easy for the next six months for the auto debit phase, according to industry experts.
According to some experts, the AFA system entails a fight between security and convenience, a balance that the industry has yet to achieve. Parijat Garg, a fintech expert, claims that the RBI guidelines, in their current form, are more concerned with security than usability and that they may make things more complicated for people who have become accustomed to the convenience of auto debit. “Auto debit transactions up to Rs 5,000 are eligible for partial relief, which should cover a significant proportion of such auto debit transactions.
“A better solution would have been to ensure tighter security and privacy responsibilities, which would come from data protection laws as well as on players who are responsible for storing and using this information, as well as potentially bringing in more tokenization guidelines,” Garg said. He went on to say that right now, the issue is about card information being stored and leaked, as seen in recent cases where customers’ data was put at risk and the companies responsible for it were not kept accountable.
“All ecosystem players, be it banks and payment gateways, are guilty of not taking RBI directive seriously from 2019 and not being able to come on a single platform, which we should have done at least a couple of months ago so that the transition to the new way of doing recurring transactions might have been smooth.” Payments Council Of India (PCI) chairman Vishwas Patel told PTI on Tuesday.