Widespread disruption in payments feared as new RBI norms kick in today

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The payments industry, including merchants and the entire banking ecosystem, fears that 50-60% of recurring transactions may fail as a new Reserve Bank of India (RBI) norm kicks in today. Industry insiders fear a disruption in business due to failure in executing standing instructions, which would impact customers.

Under the new RBI norms, banks would require to inform account holders in advance about recurring payments. The payment transaction would be completed only after getting the payer’s approval, in other words, an additional factor of authentication (AFA).

Banks have informed their customers about the AFA that will be required from October 1 for the processing of e-mandate on cards for recurring transactions. AFA will be needed to perform the e-mandate registration, first transaction, modification or deletion.

Disruption feared

The Business Standard, quoting several banking executives, reported that it would take the payments system up to three months to streamline the system.

“India could experience lakhs of transactions getting declined, resulting in a financial mess in the short term as well as impacting the delivery of goods and services,” the report quoted one of the banking executives as saying.

At the moment only VISA cards are enabled for registering Standing Instructions (SI) according to the central bank’s latest guidelines. Other merchants such as MasterCard, Diners and Rupay are likely to follow soon.

HDFC Bank told the business daily that for SI on its debit and credit cards, services such as Amazon Prime, Netflix, Max Life Insurance, Google India, Hotstar, Policybazaar, Facebook, and Bajaj Allianz General Insurance were live with it for the new SIs.

However, some industry executives felt that the new RBI guidelines would act as a catalyst in restoring the faith of customers in the digital system.

“These measures will act as a catalyst in re-emphasising the need for a secure system that can enable consumers to place their trust in digital economy…Moreover, this will serve as a boost to the burgeoning subscription economy in the country, across sectors, while protecting them against financial fraud,” said Shashank Kumar, chief technology officer and co-founder of fintech unicorn Razorpay.

Another industry expert, Manas Mishra, chief product office, PayU, was quoted saying that his company was working with merchants and issuers to ensure that transfers were hassle-free and claimed that all players in the payments business were at different levels of readiness in complying with RBI’s guidelines.

Anand Kumar Bajaj, managing director and chief executive officer of PayNearby, said that adhering to the new, more stringent, guidelines could seem inconvenient to the customers but will ultimately work in their interests, “Earlier, consumers used to complete their transactions at multiple consumption points for e-commerce or food ordering services. But now, payment transactions pertaining to recurring payments using cards, will have to be routed through the issuer bank. While this may seem a little inconvenient from the consumer perspective, it is a welcome move by the regulator and is in the interest of the consumers.”