“Do we need to withdraw our money and stop going to banks?” This was a direct question posed to me by a group of acquaintances at a social gathering. The group had come across several social media posts of some news channels announcing new rules governing card transactions from October 1. It was evident from their conversation that they were fearing for their money and were revisiting the demonetization trauma of 2016. Actually, the media during the month of September was continuously hammering the changes in transaction rules taking place from October 1, and most of the people were gripped by fear psychosis as they were clueless about these changes taking place from the month of October.
As a matter of fact, the past few months have been abuzz with some changes in the conduct of financial transactions through credit and debit cards. Most of the card holders were clueless when they came across media reports that “from October 1, some auto-debit transactions from cards may fail.” The reports also vehemently campaigned for linking Aadhaar with PAN. If the PAN card is not linked with the Aadhaar card, it is likely to become inoperative and may attract a penalty. Also, one may not be able to carry financial transactions where it is mandatory to provide PAN card details.
Even as the new rules with respect to auto-debit transactions stand implemented from October 1, confusion still looms large among common bank customers about this kind of change. Basically, the ghost of demonetization still haunts the general public when on November 8, 2016 the government demonetized the high value notes of Rs.500 and Rs.1000 from the financial system. They had to struggle very hard to not only get their demonetized notes exchanged, but also withdrawing their own money from the banks was an uphill task for most of them.
As the outbreak of the coronavirus pandemic challenged the norms governing systems and procedures in every sector, the changes in the banking system, particularly in the conduct of financial transactions, were inevitable. We witnessed a never-seen-before surge in digital transactions to fall in line with Covid-induced social distancing norms. These digital transactions have been most convenient for the bank customers as they have been relieved of the burden of visiting the branches physically, sometimes for small transactions. But at the same time, the huge volume of financial transactions on the digital platforms has provided a green pasture for the cyber criminals to rob people of their monies through their tricks.
While understanding and anticipating the growing cyber threats, the financial regulators have been taking protective measures on a continuous basis to insulate the general public from financial frauds perpetrated by unidentified cyber criminals through digital channels.
What is an auto-debit facility?
Auto-debit facility offered by banks and financial institutions sets you free from making recurring bill payments. By virtue of this facility you don’t have to make payment of different bills manually or write a cheque every time towards your bills, as the payment goes through electronically on its own. While choosing the auto-debit facility, you can set the frequency of payments as per your requirement.
For example, you can avail the auto-debit facility for your loan EMIs (Equated Monthly Installments), insurance premium payment etc. Once you set the frequency of the auto-debit facility, you don’t need to keep track of the due dates of your bill payments, EMIs etc. These payments will get paid automatically.
Also, typically at the time of making a third-party payment using a credit card or debit card, the third-party merchants ask the customers if they would like to make a standing instruction for automatic deductions. Many times, customers opt for this.
Here you have to ensure that your account has sufficient amount to meet the demand of auto-debits. Notably, the bank needs your mandate to offer you this service.
What are the changes in the auto-debit facility now?
The new guidelines rolled out by the Reserve Bank of India (RBI) envisage safeguarding third party customer transactions and now banks need to inform the customer each time an auto debit is made on third-party merchant websites so that the customers know what’s happening in their bank account. In simpler terms, banks will have to seek customer’s permission or seek additional authentication before executing each transaction involving third-party recurring payments through auto-debit mode.
Under the new rule, customers who want a standing instruction in place for recurring payments will have to register for e-mandate at the merchant’s site for the first transaction, with a validity period and maximum amount.
Precisely, for recurring payments through third-party merchant websites, the bank needs to send a communication to the customer five days in advance and at least 24 hours before the payment date intimating the customer about the scheduled payment and asking if he/she wants to opt out or part-pay the amount. If the customer wants to opt out of the standing instruction arrangement, he/she can do that. Customers will have to do a one-time registration for third party payments. Else, customers will have to go to the bank websites and make payments directly.
Notably, the rule does not apply to payments made through internet banking channels.
Which kind of payments are covered under the new auto-debit rule?
As envisaged in the RBI guidelines, all types of auto-debit payments using credit card, debit card, UPI, PPI, including wallets are covered under the new rule. This covers payments of utility bills, subscription renewals and any other recurring payments involving third-party services using their own merchant websites to accept online payments.
For auto-debits above Rs 5000, an additional one-time password is required. This is an additional security measure.
It’s noteworthy that the payment of EMIs on loans, like home loans, car loans etc using bank websites fall outside the ambit of the new auto-debit rule.
What made the RBI change the rule?
As stated above, the activities of the cyber criminals have intensified with the onset of Covid-19 pandemic. They have been on prowl and grazing on the green pastures available on the digital platforms. Incidents of financial frauds have surged alarmingly. The RBI has found that auto-debit transactions on third-party merchant websites are susceptible to fraudsters. Hence, the regulator wanted banks to have a control over the auto-debit payments on merchant sites and customers to know about the payments each time.
So, the new auto-debit rule provides another layer of security to the customers while conducting transactions at a third party (merchant) website.
Are there any charges to be paid by the customer?
At the moment, there is no mention of charges to be paid on availing auto-debit facilities under the new rule. This suggests customers don’t have to pay any additional charges on auto-debit facilities. However, customers have to note that an auto-debit mandate is as good as issuing a cheque. They need to ensure a sufficient amount of balance in the account to meet the demand of auto-debits. If the payment bounces, they will have to bear the penalty on the lines of a bounced cheque.