A State Bank of India branch in Mumbai. A recent change in India's banking rules mandates that all kinds of recurring payments, especially made through credit and debit cards should seek the prior approval of customers. Image Credit: Bloomberg

Dubai: Non-resident Indians who maintain bank accounts and hold credit and debit cards in India should be aware of some new changes to recurring payments introduced by the Reserve Bank of India (RBI), the banking regulator.

The RBI has recently introduced what is known as e-mandate for auto debits linked to credit and debit cards.

What is e-mandate?

The changes in the RBI rules require that starting October 1, all kinds of recurring or repetitive payments, especially made through credit and debit cards and which are of value of Rs5,000 and above, must be preceded by a notification from the bank, 24 hours in advance, informing the customer about the scheduled payment.

The advanced notification for executing recurring payments to customers sent by banks is meant for seeking the latter’s approval for taking forward any such transaction, as per the new norms notified by the RBI.

Simply put, customers have to provide additional factor authentication (AFA) by approving the auto-debit requesting in advance. The transaction will not be completed if customers do not approve or reply to the pre-debit notification.

If the customer’s approval is not received, such transactions will not be executed.

Under this new system, for any transaction of more than ₹ 5,000, banks will send onetime passwords (OTPs) to customers. Those recurring transactions on a customer’s credit or debit card, which don’t comply with this new rule, will now be declined by banks.

In simple terms, only those transactions which have the customers’ e-mandate will be successfully executed, as per the central bank’s new guidelines.

Additional protection

The new rules provide additional protection to customers from online frauds, especially on third party platforms, where it has been seen that possibilities of payment related frauds are more. Therefore by introducing the e-mandate rule, RBI wants to provide customers, greater control while undertaking recurring payments using credit or debit cards.

As it stands the new rule applies only to standing instructions on cards and not standing instructions on accounts given to banks by customers. Therefore direct debits for equal monthly installments (EMIs) for loans and systematic investment plans (SIPs) payments are unlikely to be affected.

The auto-debit rules are likely to impact customers who make card based auto-transactions for bill payments, OTT [over the top internet based content] subscriptions, and other online services and subscriptions.

Internet merchants including Google, Facebook, YouTube have notified customers that the new rules may lead to disruptions in e-mandate based recurring payments.

Pros and cons of e-mandate
The new e-mandate rule protects customers from many payment frauds related to recurring transactions.
Requirement for customer authorisation gives greater control customers.
Banks to take greater care prior to authoristing payments.

Failure to authenticate recurring payments on time could lead to disruptions in services, such as television and internet based subscription services.
NRIs who have not linked their banking services to their overseas mobile numbers will not be able to receive their SMS notifications.
NRI customers will now need to keep a close eye on their upcoming recurring payments in India and make arrangements with their banks to ensure that they receive notifications on time to avoid disruption of services linked to such payments.