New norms put auto debits in no man's land

Asia's Tech News Daily

recurring payments, rbi, rbi rules, auto debit, recurring, transaction, payments, Netflix, Amazon Prime, Reserve Bank of India, took effect October 1, 1634715819000

Mumbai: If you couldn’t renew monthly subscriptions to the New York Times platform or Netflix and Amazon Prime streaming services, you shouldn’t have blamed technology. New central bank rules on automatic debits, which took effect October 1, probably stood in the way, as many high-street banks are yet to make the changes sought by Mint Road.

Recurring payments based on standing debit instructions now require banks to reach out to customers before such deductions are made. About three weeks into the new regime announced by the Reserve Bank of India (RBI), confusion reigns on how merchants, especially those acquiring partners overseas, can re-enable automatic payments for their customers. This has led to a scramble among large merchants on providing alternative payment solutions to subscribers, while others have temporarily curtailed the range of services offered.

Amazon, for instance, has discontinued free trials for its Prime subscription service in India, citing “frictions in the auto payments process,” disclosures on its website showed.

Netflix is prompting customers to reset their payment mode and one of the options provided is “AutoPay” on Unified Payments Interface, a service the OTT company enabled only last month.

Apple, meanwhile, is advising its subscribers to top up its closed loop wallet Apple ID to ensure smooth payments.

“If you add funds to your Apple ID balance, your subscription payments will continue until the balance is depleted,” said an Apple communication seen by ET.

Google is asking customers of its cloud services to add a new primary payment method “that’s compliant with the RBI.” Others such as YouTube and Facebook have put out similar instructions as well.

The resulting confusion has not gone down well with customers or entrepreneurs running their own subscription services. While some blamed their respective banks, several others appeared critical of the regulator, too.

Platforms, Telcos Affected

Those affected also include providers of software as a service (SaaS) facilities, media platforms and even telecom companies that generate revenues through subscriptions based on one-time mandates.

“The most hated organisation in founder circles right now is RBI,” tweeted Kushal Bhagia, chief executive of VC firm Firstcheque. “Every founder whose biz ran on subscriptions is seething with rage and helplessness watching their retention cohorts get nuked by this random new regulation on credit card subscriptions (sic).”

The most hated organisation in founder circles right now is RBI. Every founder who’s biz ran on subscriptions is…

— Kushal Bhagia (@kushalbhagia) 1634715819000

The central bank couldn’t immediately be reached for its comments.

Besides retail customers, many corporates and MSMEs also pay monthly bills through this automatic deduction route. Industry estimates suggest such payment volumes amount to $2 billion in annualised gross transaction value.

Time for Compliance

Experts pointed out that while RBI’s new rules on auto payments have led to disruptions, the banking regulator gave banks more than two years to ensure compliance.

“RBI’s new rules are good for customers in the mid to long term, as they ensure visibility and control over their billings,” said Vishwas Patel, executive director at payment gateway firm CCAvenue. “It’s very disappointing that banks have not heeded repeated reminders to ensure requisite compliances.”

RBI’s new rules mandate that banks can only process auto debit transactions if they send a pre-debit notification to customers at least 24 hours before the payment. They also require a separate flow for auto transactions above Rs 5,000. These would need customers to authenticate such payments manually with a one-time password (OTP).

“RBI has put the onus very much on the issuing banks to inform and facilitate such transactions,” said Raman Khanduja, chief executive at Mintoak, a fintech firm. “This has complicated the entire flow, as challenges in coordination between merchants with international acquirers and Indian banks can lead to some friction.”

Sources said the country’s largest public sector lender, State Bank of India (SBI), and card network American Express have not yet gone live. American Express and SBI didn’t respond to ET’s queries.

No Clarity with Banks

ET had reported in September that top private sector lenders, such as HDFC Bank, ICICI Bank and Axis Bank, are working toward compliance through tie-ups with payment gateways BillDesk and Razorpay. However, it is unclear if these banks have gone live with recurring mandates for all major merchants, including those cited above.

Officials said most category A merchants are aggressively onboarding customers on their proprietary wallet platforms. “Customer communication from these merchants clearly indicates they don’t want to rely on the banking channel alone to ensure smooth flow of transactions,” an executive at a leading merchant said.

Another official with a payments company said banks and merchants are yet to agree on scoping out the responsibility matrix.

“While several merchants who have small value transactions are yet to take a call on the way forward, the final action required to complete the purchase falls with the banking entities, which aren’t fully equipped to abide by the introduced guidelines, causing a lot of transactions to fail,” said an industry executive cited above.

To be sure, there might be some costs attached to the changeover as well.

“Policy interjections that mandate the industry to change these consumer convenience features will be expensive for all stakeholders,” said Srinath Sridharan, Visiting Fellow, Observer Research Foundation. “Service providers might lose consumers who might opt for other modes of payment. As a matter of regulatory-industry engagement, this also indicates the huge risk of influence of the regulators, who could inadvertently shape the technological choices of the consumers.”

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