A guide to navigating the new direct debit rules

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New regulations that require second-factor authentication for certain direct debit transactions become operational from October 1, 2021. What impact will this have on all of your automated transactions such as EMIs, phone bill payments , gas and electricity and SIP? How to get around the new rules if your bank or merchant is not yet in compliance? Read on to find out.

Affected operations

For starters, not all of your automated payments will be affected. The new RBI guidelines will only impact all recurring contactless payments made through debit / credit cards, UPIs, and prepaid instruments, when made from websites and third-party applications.

Transactions initiated on the bank’s website or app will continue without hassle. For example, if you have automated a payment to your HDFC Bank debit / credit card through their BillPay service, this can continue.

Also Read: Auto Debit Standards: Payments Council of India Requests Extension for Smooth Transition

Payments initiated through third-party apps, which do not comply with RBI guidelines, can now no longer be made. Indeed, the new RBI guidelines require these transactions to undergo additional factor authentication. This means that every automated recurring transaction from outside a bank’s portal will now require second-factor authentication through an OTP.

For all your direct debits greater than 5,000 per transaction, you will now have to authorize the banks to carry out the transaction at each maturity of the transaction. An OTP will be sent to you 24 hours before the transaction, for each payment to be made.

The OTP will be sent to your registered email address and phone number, along with merchant details, transaction amount. A link allowing you to modify or cancel the transaction or the recurring mandate itself will also be sent alongside.

Additional factor authentication will only be of a one-time nature for payments below 5,000 (required when registering the mandate). If you have previously registered such mandates with third-party apps / websites that comply with the new guidelines, your payments will continue without hassle. If the merchant is non-compliant, banks will prompt you to provide additional single sign-on for such transactions.

It should be noted that large private banks, such as HDFC Bank, ICICI Bank and Axis Bank have enabled automated payments with additional factor authentication, for electronic money orders at various merchants.

In many other banks, this was only available for transactions or standing instructions made through net banking, telephone banking or the bank’s UPI portal. Examples of these include your loan EMIs and monthly investments such as SIPs, where you have either signed the NACH / ECS mandate or provided a standing instruction through the bank’s net banking portal.

After the October 1 deadline, more and more banks partnered with selected merchants to enable two-factor authentication as mandated by the RBI. But some still have to comply.

Process non-compliant transactions

Transactions initiated with non-compliant merchants may not be successful from October 1, 2021. You can make direct payments on the merchant app / website or choose the merchant under your UPI, net bank account, or account card and pay them when dues go up.

However, if you want to continue automating transactions with these non-compliant merchants, banks may require you to register recurring payments on the bank’s portal.

For example, if you have opted for an automatic renewal of your subscription to the OTT platform, it may not be applied from October 1 if it does not comply with the new guidelines issued by RBI. Note that while Amazon Prime, Netflix, and Hotstar are currently integrated into the common platform, other OTTs have not.

How will you know if your merchant is compliant or not? Do not worry. Banks will inform customers about this by SMS and e-mail. Customers can then reissue standing instructions to banks, to continue automating transactions, hassle-free.

Not to mention the non-compliant merchants, many banks themselves have yet to upgrade their software to comply with the new guidelines. Customers of those banks that have authorized automated payments to merchants should check with their banks for the status of recurring payments.

In the meantime, you can make direct payments on the app / website or choose the merchant under your UPI / net banking / card account and make payment whenever payment is due.


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