Lately, there have been complaints from several users that auto-debit payments are failing. A user who goes by the Twitter handle @sk__shaan said that he could not update his payment details in the App store and sought help. Another user, @jiteshluthra, tweeted about how he can’t make auto debit recurring payments using his Visa and Amex cards on a music app.
It may be noted that the Reserve Bank of India (RBI) mandated all commercial banks, non-banking financial companies (NBFCs) and payment gateways to use the new auto-debit rules to process domestic and cross-border recurring payments. This new rule was implemented from October 1, 2021. The RBI directive also stated that there wouldn’t be any automatic recurring payments for services like utility bills payment, phone recharge, DTH recharge, OTT services and others without an additional factor of authentication (AFA); these auto-debit rules do not affect mutual fund systematic investment plans (SIPs) via mandate mode.
The implementation, however, has not been smooth as of now.
“The RBI's goal in establishing a new auto-debit rule was to protect consumers from fraudulent transactions. While security was assured, convenience and easy accessibility were hampered. The auto-debit rule had a detrimental effect on the smoothness of the transactions. Not only BNPL companies but all companies that deal with recurring payments were impacted. Payment failures resulted in service denials for users of such services," said Bhavin Patel, Cofounder and CEO of LenDenClub, a P2P lending and borrowing platform.
What Is The Problem?
The new mandate states that if the amount for a recurring service is below Rs 5,000, customers must re-authenticate their payment details like debit or credit cards or UPI and then validate it with a one-time password (OTP). Also, banks will have to inform customers 24 hours before the auto-debit date and provide an option to cancel the recurring payment too.
A lot of online apps use international payment gateway services to process payments. "Most of these brands run on international payment gateways with local processing. Having said that, the backend processing will happen as per new RBI regulations, at least for the issuers who are ready with the new setup, which means, issuers who aren't ready with the new set-up, their payment instruments cannot be used for online auto-debit payments," said Amit Bansal, Co-founder, Nimbbl, a credit & payments technology company.
If the amount is above Rs 5,000, then an additional authentication for that particular payment must be completed. Users would need to approve this transaction 24 hours before it happens.
But as simple as it sounds, it is a highly complicated affair. Several vital stakeholders would need to make backend changes in their softwares, frameworks and risk management systems, to implement it.
“The RBI's instructions for recurring payments require banks, card providers, and service providers to work together through a hub for standing instructions that allow customers to view, modify, or cancel upcoming recurring bills. In addition, RBI also needs customers to be provided 2FA (two-factor authentication) and SMS alerts,” says Adhil Shetty, CEO of Bankbazaar.
Banks, payment gateways, and service providers all have to work together to build a new payment system software and stress test it. Building a new payment software takes time as there are many moving parts involved. While some companies were able do it within the timeframe given by RBI, some are still conducting tests for the same. This is why some users on some digital applications are facing recurring auto-debit payments failure.
“Service providers and banks that integrated into this hub have been able to provide customers with a secure recurring payments option. Those who haven't been able to integrate—for various reasons—have not been able to provide the same services in the same way. Their customers have had to find alternate ways to settle bills, such as UPI or in-app wallets. The integration involves time and costs,” adds Shetty.
What Can You Do In The Meantime To Solve This?
As of now, several companies and service providers have introduced alternative methods for those whose auto-debit payments are failing.
Apple has stated that users can buy their Apple ID credits and then pay on an ongoing basis for their services.
There is another complication too. Like for instance the purchase transaction details now needs to be shared with the issuer payment company or the bank too. "These changes (new auto debit rules) have absolutely changed the backend processing for subscription transactions as the “plan” ( For e.g.: Zoom yearly subscription of Rs.500) which was earlier only between the merchant and the consumer, now needs to be shared with the issuer or the bank so that they can adhere to the directive," added Bansal.
YouTube has said that users can pay via a monthly, quarterly, or yearly one-time payment and enjoy their services. “The Reserve Bank of India recently issued new regulations that affect recurring payments for YouTube membership purchases. As a result, we’re temporarily limiting new YouTube Premium, YouTube Music Premium & Channel Membership purchases to non-recurring payments only. We're slowly rolling this change out to everyone in India over the next several days,” read a YouTube community help post.
In addition, video conferencing app Zoom has created a dedicated ‘PayNow’ link method for allowing users to pay for its services.
“Please be advised that, due to a regulation from the Reserve Bank of India, the automatic renewal for (Grammarly Premium) may not be successful. If you encounter any issues with automatic renewal, please re-enter your payment information,” read an excerpt from Grammarly’s subscription FAQ.
Similarly, several companies have either come up with an alternative payment solution or are working towards one.