Auto Debit: The ‘Recurring’ Storm In The Payments Teacup

There has been an outrage around the RBI's recurring payments mandate. Is it a storm or a storm in a teacup?

<div class="paragraphs"><p>Guests ride the Tea Cups at Walt Disney Co.'s Disneyland Park in Anaheim, California, U.S.</p></div>
Guests ride the Tea Cups at Walt Disney Co.'s Disneyland Park in Anaheim, California, U.S.

The payments universe has been in a tizzy.

The regulator, Reserve Bank of India, has decided to implement a new set of rules, two years after they first said they would do so. In a world where payments are real-time and even a few seconds is too long, it appeared that even two years was too short to implement a change for India’s banks and financial institutions.

What followed was some amount of chaos (we’ll attempt to quantify it shortly), which has been magnified by grumbling from consumers peeved about their Netflix and Economist subscriptions going on the blink... temporarily.

The Story So Far

We’ll give the sarcasm a break, if only to explain the facts of the case.

The guidelines in the middle of the storm (in a tea cup) are the new rules for recurring payments. The framework was first issued in August 2019. Yes, 2019. At first it applied only to card and wallet-linked transactions. By December 2020, the RBI had made it clear that even UPI and cross-border transactions will be included.

If the guidelines were, for some reason, believed to be impossible to implement, banks had two years to argue it out with the RBI and propose a different solution. Banks did seek an extension of the deadline but they didn’t suggest that it can’t be done.

The original deadline was March 2021. When it arrived, banks and merchants were woefully unprepared and so the deadline was shifted to Sept. 30, 2021. The new rules are now in force.

The What, The Why, The Wherefore

What do the guidelines require? They require that for transactions up to Rs 5,000, a customer should be asked to complete an additional factor authentication (punch in an OTP–one-time password) once. Yes, once. If your transactions are higher than Rs 5,000, then an OTP is needed before each payment is processed.

Why... why... why is the RBI doing this, has been a common refrain.

Well, two years ago, consumers were complaining that a number of app service providers had made it excessively difficult for people to exit recurring payment arrangements. You download an app and have to put in your card for a trial period and you get charged over and over. Either the amount is small and you forget to cancel the subscription or you give up trying because these apps make it so difficult to exit.

At that time, it was felt that consumers should have an easy way out should they want it. The principle here was that the control of a payment mandate should rest with the consumer and not the merchant.

The next part is the most important—what proportion of payments are impacted. There is no official data but these are the market estimates.

Card-based recurring transactions account for only 2.5% of all transactions by volume. They account for only 1.5% in terms of value. About two-thirds of these transactions are below Rs 5,000.

Your Inconvenience Is My Safety

So, yes, there is some inconvenience for some customers. And, yes, some subscription businesses have seen subscribers drop off.

But the noise is disproportionate to the extent of inconvenience, we would like to argue.

It is also not the same for everyone. You’ve already heard from the inconvenience brigade. They are all over social media. Now here is the other side. Balance out the two to make your own judgment.

A survey conducted by Local Circles, a community social media platform, says it received over 40,000 responses from consumers located in over 302 districts of India. 48% respondents were from tier-1, 27% from tier-2 and 25% respondents were from tier-3 cities and beyond.

8 in 10 of those who responded support RBI’s move to stop auto-debit taking place.

Most had complaints about recurring app store charges and wanted an out. About 43% of the respondents said they had been wrongly charged or overcharged via the recurring payments option, mostly through app stores.

With additional factor authentication on recurring transaction, the power moves back to the consumer and that’s a good thing.

Who's At Fault And What Now

For those feeling inconvenienced, spend a minute thinking about who is to blame here. Yes, your first response may be the RBI if you disagree with the direction of regulation.

But, let’s get real. This is a regulated sector and if the regulator does issue a set of regulations, banks and merchants have to comply.

In this case, once it was clear, at least by Mar. 31, 2021, if not before, that the rules had to be enforced, banks needed to reach out to customers via mailers, messages and provide alternative options for recurring payments.

Did we see banks or merchants do any large outreach? No. Hence the inconvenience to some customers.

Now, as the rules have come into play, options have emerged. SI Hub developed by Billdesk and Mandate HQ developed by Razorpay are options being used to route recurring payments.

So, solutions could have been found to avoid even the limited number of transactions impacted. They just weren’t found in time.

We’ll close by warning that a repeat of this outrage is likely when the new mandate on card storage kicks in at the end of December. Here too enough time has been given, a solution (tokenisation) has been found. But are we seeing consumer outreach to ensure the transition is smooth? Not yet.

So, let the outrage begin. Again.

Card Tokenisation: Will Your Online Shopping Be As Easy As Before?

Ira Dugal is Executive Editor at BloombergQuint.