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Status of rollout of Reserve Bank of India’s directive on recurring payments: Challenge for e-Commerce

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The deadline for compliance by banks, prepaid instrument issuers and card payment networks with RBI’s directive on Processing of e-Mandate on Cards for Recurring Transactions for amounts upto Rs 5000/- comes to an end day after tomorrow i.e., 30th of September.

Once implemented this will change the way recurring payments on cards work in India. Simply put, a consumer today may have different recurring mandates across tens of merchants and each mandate is set up on the merchant’s platform and managed from there. RBI’s directive has put the customer’s bank in the middle of this, essentially saying that the bank will be responsible for enabling the customer to manage all the mandates on a card i.e., registration, deciding on the instalment amount and tenure, withdrawal. Bank will need to provide the customer with a control to stop any subscription, raise complaint, all at one place. Details of all the features of the new system are given at the end of this post.

While the card issuer bank has to do all this for the consumer, the card acquirers (the bank and payment aggregators who have a tie-up with the merchants) have to get the merchants on board this system. The card networks too need to make changes in their systems. Payment aggregators have to provide the solutions for the banks and the merchants. Cardholders i.e., the customers have to update their billing instructions for new mandates and probably authenticate their existing mandates as these are migrated to the new system. It is not that RBI has decided to get all this done just yesterday. It’s been on the cards (no pun intended) since August 2019.

The reality is that the ecosystem is not yet ready. Just five banks are expected to be ready by the September 30th. They may account for the bulk of the credit cards but that is not enough. As per information from the industry, three of these become ready recently and two more are expected to be ready anytime. Migration of merchants can only be tested if a sufficient number of issuer banks are plugged into the system. Migration is in different stages for different merchants. So as things stand, merchants are rightfully worried that existing mandates would fall through the cracks because system is not ready.

It is important to note that the merchants are not in the driver seat on this. They have no real ability to ensure that the systems are ready. Banks are in the driver seat but for them – this is one more compliance, a cost, while for merchants, a whole lot of their subscription revenue in October and consequently their customers stand to fall through the cracks. Payments with respect to insurance premium, utility bills, education periodical subscriptions, telephone bills, groceries, SaaS, and cloud services to SMEs, DTH, entertainment, and other subscription payments will be severely impacted without full participation of all the banks in the recurring infrastructure.

Recurring transactions on credit card were working even before 2019 (when RBI came up with these directives). Presumably, the industry wanted to get the recurring transactions going on debit cards also. The RBI directive issued various conditions for recurring transactions and made them appliable equally for credit cards and debit cards – resulting in the present situation. As things stand, merchants should not be allowed to suffer due to delays at the end of the regulated banking/ payments entities. We hope that the RBI will take stock of the situation and provide the requisite time period to ensure that the systems are able to migrate the merchants successfully. There are other issues related to how these directives will apply to cross border transactions and we have represented to RBI on that. Hopefully, RBI will come out with a guidance on that too.

An overview of the RBI’s directive

The directive requires the card issuers (basically issuer banks) along with the card networks to put in place a system for:

  1. Registering the e-Mandate using an additional factor of authentication (AFA) like one time password (OTP) through mobile phone. The consumer will need to provide or agree to the validity period of the e-Mandate and will have the option to provide an e-Mandate for a fixed amount or a variable amount, subject to a cap of Rs 5000/- per transaction.
  2. Sending a pre-transaction notification to the cardholder, at least 24 hours prior to the actual charge to the card. While registering e-mandate, the cardholder shall be given facility to choose a mode among available options (SMS, email) for receiving the pre-transaction notification. The facility for changing this mode of receiving pre-transaction notification, shall also be provided to the cardholder. The pre-transaction notification shall, at the minimum, inform the cardholder about the name of the merchant, transaction amount, time of debit, reference number of transaction/ e-mandate and the reason for debit.
  3. Providing the cardholder with the facility to opt-out of that particular transaction or the e-mandate. Any such opt-out will be based on AFA validation. On receipt of intimation of such an opt-out, the issuer shall ensure that the particular transaction is not effected / further recurring transactions are not effected (as the case may be). A confirmation intimation to this effect shall be sent to the cardholder.
  4. Post-transaction alert / notification to the cardholder- This notification shall, at the minimum, inform the cardholder about the name of the merchant, transaction amount, date / time of debit, reference number of transaction / e-mandate, reason for debit, i.e., e-mandate registered by the cardholder.
  5. An online facility to withdraw (using AFA) any e-mandate at any point of time following which no further recurring transactions shall be allowed for the withdrawn e-mandate. In respect of withdrawn e-mandate/s, the acquirers (banks) shall ensure that the merchants on-boarded by them, delete all details, including payment instrument information.
  6. An appropriate redress system shall be put in place by the issuer to facilitate the cardholder to lodge grievance(s).

Card networks also need to put in place dispute resolution mechanism for resolving these disputes with clear Turn Around Time. The card networks shall make suitable arrangements to separately identify chargebacks / dispute requests in respect of e-mandate based recurring transactions. RBI instructions on limiting liability of customers in unauthorised transactions shall be applicable for such transactions as well.

A summary of the e-Mandate Directive, details of the extension and its impact is available here.

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