India Payments Rule: Tech Giants Prepare for Changes

Recurring Payment Changes in India Impact Tech Companies and Banks

Numerous technology firms, including Apple, Sony, Google, Zoom, and PayPal, alongside a significant number of banking institutions, are alerting their customers and partners in India about a potential increase in transaction failures. This is due to a new directive being implemented by the Reserve Bank of India concerning the processing of recurring payments within the country.

New RBI Directive Details

Effective Friday, the Reserve Bank of India (RBI) is mandating that banks, financial institutions, and payment gateways secure additional authorization for automated recurring transactions exceeding 5,000 Indian rupees (approximately $67). This will involve sending notifications, utilizing e-mandates, and implementing Additional Factors of Authentication (AFA).

The directive applies to both debit and credit card transactions of this nature.

Implementation History

Initially announced in 2019, the directive was originally slated to take effect in April of this year. However, it was postponed until September 30th to allow banks and other relevant parties sufficient time to achieve full compliance.

The RBI expressed its dissatisfaction with the industry’s initial handling of the directive, stating in March that any further delays in complete adherence would result in “stringent supervisory action.”

Rationale Behind the Directive

According to the original 2019 circular, the framework was designed as “a risk mitigant and customer facilitation measure.” The issuer processing these transactions is required to provide customers with a pre-transaction notification, via SMS or email based on their preference, at least 24 hours before the charge is made.

Company Responses to the New Rule

Many companies have proactively informed their customers and business partners about the impending changes.

Apple, for example, has reminded developers that some transactions failing to meet the new requirements will likely be declined by banks or card issuers.

HDFC, India’s largest private bank, has posted a notice on its website stating that, starting October 1st, 2021, it will not approve Standing Instructions (e-Mandates) for recurring payments on its credit or debit cards unless they fully comply with RBI regulations. Other banks, including Axis and Kotak, have also confirmed their adherence to the new rule this week.

Impact on Specific Services

In May, Google paused the onboarding of new customers for recurring payments on its Play Store. Developers were advised to remove free trials and introductory pricing until “the ecosystem challenges are addressed.” Similarly, YouTube has transitioned to a prepaid payment model for its Premium service.

Amazon also announced a “temporary” suspension of new member sign-ups for Amazon Prime free trials until further notice, a change that remains in effect.

UPI Payments Remain Unaffected

The directive does not affect recurring payments made through UPI, a payment infrastructure developed by a consortium of retail banks. Consequently, some companies, such as Netflix, have begun supporting auto-pay via UPI within India.

Wider Implications and Concerns

The impact of this directive is expected to be widespread. A fintech founder, requesting anonymity, revealed to TechCrunch that their advertising payments provider for Facebook and Google informed them that automatic payments would cease starting this week, citing the RBI’s rule.

RBI’s Broader Regulatory Approach

This new rule represents the latest in a series of guidelines proposed or enforced by the Indian central bank in recent years. As Pratik Bhakta notes, the RBI is actively monitoring fintech innovation to ensure consumer protection.

RBI Deputy Governor T Rabi Sankar emphasized the need for a balanced approach, stating that “regulation has to adapt to ensure that the financial system absorbs digital innovation in a non-disruptive manner.” He further stressed the importance of long-term improvements, informed consent, and data transparency.

Sony PlayStation Plus Impact

On Thursday, Sony notified PlayStation Plus subscribers that credit and/or debit card payments for subscriptions may fail starting September 30th, 2021, when attempting to pay on the PlayStation Store.

This includes both new subscriptions and recurring fees. Consequently, automatically charged PlayStation Plus subscription fees may be unsuccessful, leading to the termination of the subscription.