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Auto-deduction of monthly dues is set to get an additional layer of security with the implementation of the new RBI guideline.
A directive from the Reserve Bank of India (RBI) mandated that two-factor authentication had to be put in place by banks, card companies, and online vendors for deduction of recurring debits from customers. The deadline for implementing this rule was set as 1 April 2021. However, on 31 March 2021, this deadline was extended to 30 September 2021.
Recurring monthly payments like phone bills, utility bills, media content subscription, over-the-top (OTT) streaming services etc. were brought under this requirement. Banks, credit card companies, and online vendors for whom this rule was applicable would have to send a notification to the customer five days before the deduction. The deduction to be made has to be approved by the customer. A one-time password would have to be sent by the deducting institution to the customer in case of recurring payments over Rs 5000.
Most banks and vendors had expressed their inability to accommodate these changes within the given timeline. The RBI had refused to extend the deadline earlier, but now it has allowed a further six months for banks and vendors to get ready. It was feared that automatic customer payments would get disrupted from April onwards due to this rule. The RBI also said that it anticipated large-scale inconvenience among customers due to the delay in implementation and has accordingly approved the timeline extension.
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What is the origin of this RBI instruction?
In a bid to safeguard third-party customer payments, the RBI asked banks to implement the extra layer of authentication in third-party deductions. It had issued a circular in August 2019, in which it asked banks to obtain confirmation from customers before each auto-debit. A reminder circular was subsequently issued in December 2020.
Does it affect netbanking payments as well?
Netbanking payments are not subject to this requirement. A regular home loan or auto loan EMI, gas/electricity bill payment etc. will not be affected by this regulation. Only payments made through third-party merchant websites would have to comply with this extra layer of authentication.
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What is the reason for resistance among banks and third-party websites?
Banks have questioned the need for asking customers about each auto-deduction again when they have given their consent to it in the first place. Third-party websites will have to share customer payment information with banks so that the banks can obtain the consent of the customers. However, they are sceptical about sharing payment information with banks as this data is their prized possession and can benefit competitors if compromised.
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How do banks plan to implement this guideline?
Since the RBI is determined to impose this rule, the banks have no other option but to comply. They are consulting payment service providers to devise an alternate platform that can carry out the task of informing and obtaining confirmation from customers on its own. Major players such as HDFC Bank have expressed the need for a common platform and invited card issuers, merchants, card networks, and merchant acquiring banks for suggestions in this regard. How digital payment methods are changing the face of the Indian economy