- Date : 01/11/2021
- Read: 7 mins
Worried over unnecessary recurring payments or fraudulent transactions on your card? With the AFA enabled in your auto-debit facility, you can say goodbye to your worries.
Think of this scenario. You get an SMS that your debit/credit card has been charged for an OTT app service that you had subscribed to. On checking the details, you realise that you don't need this service any longer but had forgotten to unsubscribe. You check with the service provider, and they tell you that the amount is non-refundable. You are disappointed but have no recourse but to write off that money.
Many of us would have experienced this situation in real life. However, things have changed for the better since 1 October 2021, when the RBI introduced the Additional Factor of Authentication (AFA) for the auto-debit facility. This measure will stop the above scenario from occurring and put control in your hands.
Let us see what AFA for the auto-debit facility is all about and how it will protect customers from fraud and enhance convenience for customers.
What is an auto-debit facility?
You might have a monthly Netflix or Hotstar subscription. While availing of this subscription service, you would have given permission (e-mandate) to the app to debit your debit/credit card with a specified amount every month. This process of an app automatically debiting the subscription amount every month is known as an auto-debit facility.
Why has the RBI introduced AFA for auto-debit transactions?
While the auto-debit facility is very convenient for the customer to enjoy uninterrupted service to a subscription program, it has its own share of disadvantages.
Related: Auto-Debit Rules For All Card-Based Transactions To Change From October 01, 2021: Check How This New Rule Impacts You?
a) Customer forgets to unsubscribe
One of the disadvantages is the example that we saw in the introduction. You don’t need the service, but you forgot to unsubscribe. Now your card is debited, and the amount is non-refundable, so you can’t do anything except write off that amount.
b) Fraudulent transactions on a customer’s card
The second disadvantage is the risk of your card details getting stolen and used for subscriptions without your consent. With the auto-debit rules before 1 October 2021, you did not have any control over this. You would come to know about such fraudulent transactions only after they happened. You then have to go through the hassle of blocking the card and the long-drawn legal process of recovering your money.
The RBI has taken note of the above disadvantages and decided to put the control back in the hands of the customer by introducing AFA for auto-debit transactions.
Bank fraud statistics in India
Instances of fraudulent transactions and other bank-related frauds have been rising at an alarming rate in India for the last few years.
Value of bank frauds across India
(Source: https://www.statista.com/statistics/1012762/india-value-of-bank-fraud/)
As seen in the chart above, the value of bank frauds in India has increased year on year. Last year, in FY 2020, it reached a peak of Rs 1850 billion. The RBI has been taking various steps from time to time to reduce the occurrence of these frauds. AFA for auto-debit transactions is one of the steps in that direction.
RBI guidelines for AFA for auto-debit transactions from 1 October 2021
The RBI has issued new guidelines to be followed from 1 October 2021 for processing of e-mandate on cards for recurring transactions (auto-debit). The guidelines are for the safety and security measures for card payments. The guidelines are applicable for recurring transactions performed using all types of cards - debit, credit, and Prepaid Payment Instruments (PPIs), including wallets.
a) Registration process
For the e-mandate facility, a cardholder will have to do a one-time registration process with AFA validation by the bank. An e-mandate for recurring transactions on a debit/credit card can be registered only after successful AFA validation. The registration process will include the validity period of the e-mandate. Currently, the RBI has fixed the upper limit at Rs 5000 per transaction for recurring transactions done through e-mandate.
Related: Consumers Can Give E-Mandate For Recurring Payments Via UPI: RBI
b) Processing of transactions
For recurring transactions e-mandate, while processing the first transaction, AFA validation will be done. For subsequent transactions, AFA validation will not be required.
c) Notification to the customer before the transaction
For an upcoming recurring transaction, the bank will have to send a notification (SMS/email) to the customer at least 24 hours before the actual charge/debit to the card. The notification will have details like the merchant's name, transaction amount, date/time of debit, reference number of transaction/e-mandate, the reason for the debit, etc.
On receipt of the notification, the customer (cardholder) will have the option to opt-out of that particular transaction or the e-mandate (all future recurring transactions) with an AFA validation by the bank. If the customer opts out, the bank cannot proceed with the transaction, and it sends a confirmation to the customer.
d) Notification to the customer after the transaction
If the customer does not opt-out and is okay with the transaction going through, the bank can proceed with the transaction. Once the customer's card is debited, the bank will send the post-transaction notification to the customer. The notification will have details like the merchant’s name, transaction amount, date/time of debit, reference number of transaction/e-mandate, the reason for the debit, etc.
e) Transaction limit
The limit for e-mandate based recurring transactions without AFA is Rs 5000 per transaction. For any transaction above Rs 5000, an AFA is mandatory.
f) Withdrawal from e-mandate
Under the new auto-debit system, the bank has to provide an online facility to the customer to withdraw from the e-mandate at any point in time. If a customer does withdraw, no further recurring transactions shall be allowed by the bank for the withdrawn e-mandate.
How does the new system impact the users?
The biggest impact of the new auto-debit system will be that it will give control back to the customer. The customer will be able to decide whether future recurring transactions should be allowed or not on their card, which is the main purpose of introducing the new system for auto-debit. Risk mitigation and customer facilitation are the whole purposes of the new system.
What are the short-term issues and long-term benefits of this move?
While the new auto-debit system may have some short-term issues for some customers, it will benefit all customers in the long run.
a) Short term issues
In the short term, all cardholders will have to make fresh registrations for the e-mandate facility for recurring transactions. The cardholder will have to do a one-time registration process with AFA validation by the bank. The existing e-mandates for recurring payments that were registered before 1 October 2021 will not work any longer.
So, some customers may feel a short-term challenge of registering for e-mandates for recurring transactions. Also, some customers may feel that approving each transaction above Rs 5000 with AFA may cause inconvenience.
b) Long term benefits
Customers will have complete control over the transactions happenings on their cards. They will receive an SMS/email notification at least 24 hours before the actual debit takes place. At that point, they can decide whether they want to continue using the particular service or not. If not, they can either disapprove only the current transaction or cancel the e-mandate altogether for all future recurring transactions.
Also, if the customer’s card details have been hacked/stolen, they will still have control over the transactions and can avoid misuse of their card.
Related: Cyber Fraud: Common Financial Scams And How To Avoid Them?
Last words
Once the new auto-debit system is implemented successfully, customers will have complete control over all transactions on their cards. It will help them do recurring transactions on their cards with confidence. They will no longer be at the mercy of some merchants with whom the unsubscribe/cancellation of services is a challenge.
The new system will also result in bringing down fraudulent transactions on credit/debit cards. Thus, the new system will make digital transactions safer and simpler. It will give a big boost to the digital India initiative and will benefit cardholders, merchants, other stakeholders, and the entire ecosystem.
Think of this scenario. You get an SMS that your debit/credit card has been charged for an OTT app service that you had subscribed to. On checking the details, you realise that you don't need this service any longer but had forgotten to unsubscribe. You check with the service provider, and they tell you that the amount is non-refundable. You are disappointed but have no recourse but to write off that money.
Many of us would have experienced this situation in real life. However, things have changed for the better since 1 October 2021, when the RBI introduced the Additional Factor of Authentication (AFA) for the auto-debit facility. This measure will stop the above scenario from occurring and put control in your hands.
Let us see what AFA for the auto-debit facility is all about and how it will protect customers from fraud and enhance convenience for customers.
What is an auto-debit facility?
You might have a monthly Netflix or Hotstar subscription. While availing of this subscription service, you would have given permission (e-mandate) to the app to debit your debit/credit card with a specified amount every month. This process of an app automatically debiting the subscription amount every month is known as an auto-debit facility.
Why has the RBI introduced AFA for auto-debit transactions?
While the auto-debit facility is very convenient for the customer to enjoy uninterrupted service to a subscription program, it has its own share of disadvantages.
Related: Auto-Debit Rules For All Card-Based Transactions To Change From October 01, 2021: Check How This New Rule Impacts You?
a) Customer forgets to unsubscribe
One of the disadvantages is the example that we saw in the introduction. You don’t need the service, but you forgot to unsubscribe. Now your card is debited, and the amount is non-refundable, so you can’t do anything except write off that amount.
b) Fraudulent transactions on a customer’s card
The second disadvantage is the risk of your card details getting stolen and used for subscriptions without your consent. With the auto-debit rules before 1 October 2021, you did not have any control over this. You would come to know about such fraudulent transactions only after they happened. You then have to go through the hassle of blocking the card and the long-drawn legal process of recovering your money.
The RBI has taken note of the above disadvantages and decided to put the control back in the hands of the customer by introducing AFA for auto-debit transactions.
Bank fraud statistics in India
Instances of fraudulent transactions and other bank-related frauds have been rising at an alarming rate in India for the last few years.
Value of bank frauds across India
(Source: https://www.statista.com/statistics/1012762/india-value-of-bank-fraud/)
As seen in the chart above, the value of bank frauds in India has increased year on year. Last year, in FY 2020, it reached a peak of Rs 1850 billion. The RBI has been taking various steps from time to time to reduce the occurrence of these frauds. AFA for auto-debit transactions is one of the steps in that direction.
RBI guidelines for AFA for auto-debit transactions from 1 October 2021
The RBI has issued new guidelines to be followed from 1 October 2021 for processing of e-mandate on cards for recurring transactions (auto-debit). The guidelines are for the safety and security measures for card payments. The guidelines are applicable for recurring transactions performed using all types of cards - debit, credit, and Prepaid Payment Instruments (PPIs), including wallets.
a) Registration process
For the e-mandate facility, a cardholder will have to do a one-time registration process with AFA validation by the bank. An e-mandate for recurring transactions on a debit/credit card can be registered only after successful AFA validation. The registration process will include the validity period of the e-mandate. Currently, the RBI has fixed the upper limit at Rs 5000 per transaction for recurring transactions done through e-mandate.
Related: Consumers Can Give E-Mandate For Recurring Payments Via UPI: RBI
b) Processing of transactions
For recurring transactions e-mandate, while processing the first transaction, AFA validation will be done. For subsequent transactions, AFA validation will not be required.
c) Notification to the customer before the transaction
For an upcoming recurring transaction, the bank will have to send a notification (SMS/email) to the customer at least 24 hours before the actual charge/debit to the card. The notification will have details like the merchant's name, transaction amount, date/time of debit, reference number of transaction/e-mandate, the reason for the debit, etc.
On receipt of the notification, the customer (cardholder) will have the option to opt-out of that particular transaction or the e-mandate (all future recurring transactions) with an AFA validation by the bank. If the customer opts out, the bank cannot proceed with the transaction, and it sends a confirmation to the customer.
d) Notification to the customer after the transaction
If the customer does not opt-out and is okay with the transaction going through, the bank can proceed with the transaction. Once the customer's card is debited, the bank will send the post-transaction notification to the customer. The notification will have details like the merchant’s name, transaction amount, date/time of debit, reference number of transaction/e-mandate, the reason for the debit, etc.
e) Transaction limit
The limit for e-mandate based recurring transactions without AFA is Rs 5000 per transaction. For any transaction above Rs 5000, an AFA is mandatory.
f) Withdrawal from e-mandate
Under the new auto-debit system, the bank has to provide an online facility to the customer to withdraw from the e-mandate at any point in time. If a customer does withdraw, no further recurring transactions shall be allowed by the bank for the withdrawn e-mandate.
How does the new system impact the users?
The biggest impact of the new auto-debit system will be that it will give control back to the customer. The customer will be able to decide whether future recurring transactions should be allowed or not on their card, which is the main purpose of introducing the new system for auto-debit. Risk mitigation and customer facilitation are the whole purposes of the new system.
What are the short-term issues and long-term benefits of this move?
While the new auto-debit system may have some short-term issues for some customers, it will benefit all customers in the long run.
a) Short term issues
In the short term, all cardholders will have to make fresh registrations for the e-mandate facility for recurring transactions. The cardholder will have to do a one-time registration process with AFA validation by the bank. The existing e-mandates for recurring payments that were registered before 1 October 2021 will not work any longer.
So, some customers may feel a short-term challenge of registering for e-mandates for recurring transactions. Also, some customers may feel that approving each transaction above Rs 5000 with AFA may cause inconvenience.
b) Long term benefits
Customers will have complete control over the transactions happenings on their cards. They will receive an SMS/email notification at least 24 hours before the actual debit takes place. At that point, they can decide whether they want to continue using the particular service or not. If not, they can either disapprove only the current transaction or cancel the e-mandate altogether for all future recurring transactions.
Also, if the customer’s card details have been hacked/stolen, they will still have control over the transactions and can avoid misuse of their card.
Related: Cyber Fraud: Common Financial Scams And How To Avoid Them?
Last words
Once the new auto-debit system is implemented successfully, customers will have complete control over all transactions on their cards. It will help them do recurring transactions on their cards with confidence. They will no longer be at the mercy of some merchants with whom the unsubscribe/cancellation of services is a challenge.
The new system will also result in bringing down fraudulent transactions on credit/debit cards. Thus, the new system will make digital transactions safer and simpler. It will give a big boost to the digital India initiative and will benefit cardholders, merchants, other stakeholders, and the entire ecosystem.
