Synopsis–Banks have also requested RBI to exclude transactions against pre-existing standing instructions and those with international merchants from the new conditions for e-mandates on cards for recurring transactions.
Amid fears of customer inconvenience, service disruption, and a surge in the load on the banking system, many large lenders and payment biggies like SBI, ICICI, Citi, HDFC, Axis, HSBC, Visa and Mastercard have asked the Reserve Bank of India (RBI) to push back the deadline for putting in place a new system to alert customers on ‘standing instruction’ transactions like renewing subscription to OTT platforms, newspapers and magazines, and utility bill payments.
This was communicated a week ago in a joint letter to the regulator which is striving to address security concerns while enabling more digital transactions. Banks were told to set up the system by March 31, 2021.
Banks have also requested RBI to exclude transactions against pre-existing standing instructions and those with international merchants from the new conditions for e-mandates on cards for recurring transactions.
Under the proposed system, as a risk mitigating and customer facilitation measure, the card-issuing bank will have to send a pre-transaction notification to the cardholder, at least 24 hours before the actual charge or debit to the card; and, while registering e-mandate on the card, the cardholder shall be given the facility to choose a mode among available options (SMS, email, etc.) for receiving the pre-transaction notification from the issuer in simple language and unambiguous manner.
Also, on receipt of the pre-transaction notification, the cardholder shall have the facility to opt-out of the particular transaction or the e-mandate.
“Many banks are not ready. They need more time to build the infrastructure — at least three to six months. There would be an initial investment and running cost. But what is the choice? If a card issuing bank does not create the infrastructure, customers would move out. No bank would like to lose customers who are used to multiple recurring transactions,” said an industry source.
“The new system would put the onus on the banks — probably also because the regulator would let the use of debit cards for recurring transactions,” said another person.
Customers, as per the new directive (first initiated in mid-2019), would also receive a post-transaction alert from the bank — mentioning, in the communication, the merchant’s name, transaction amount, date and time of debit, reference number of transaction etc. Importantly, a cardholder should be able to withdraw any e-mandate at any point of time following which no further recurring transactions shall be allowed for the withdrawn e-mandate.
“RBI would prefer banks, which are entities it regulates and supervises, to initiate e-mandates, payments as well as store card information,” said a banker. In the course of the year, the regulator is expected to bar merchants as well as payment aggregators (which are payment service providers registering the merchants) from storing card information.
The proposal, which would mark a big shift in the world of electronic payments, has not down well among payment intermediaries, merchants, and the e-commerce industry. “While RBI is responding to instances of data breaches, the truth is a customer is well-protected. For all domestic card transactions, there is an extra authentication in the form of a one-time password. If a card is misused to carry out international transactions, a customer would receive a refund as long as she can prove that she was travelling abroad,” said a banker.