India is racing towards achieving the target of recording digital transactions of Rs 7 lakh crore by 2025, driven by automatic recurring payments of utility, education, savings, investment, food and beverage, e-commerce and other subscription services . These are the basis for democratizing credit, insurance, wealth management and other financial services and unlocking the opportunity to design customized products to effectively serve the poorest.
Unfortunately, some of the recent actions taken by the RBI may hinder the realization of this vision. For example, its circular on processing of e-mandates for recurring transactions prohibits continuance of frictionless e-mandates from modes such as debit cards with effect from October 2021, unless the conditions provided in the circular are met by stakeholders, primarily is not fulfilled by the banks.
In a country with over 97 crore cards, and 1.5 crore card transactions on a daily basis worth Rs 4,000 crore, this could create huge and unimaginable inconvenience to the consumers. Mind you, many card users were pushed into the digital ecosystem during the pandemic, and once they may be ashamed twice, if their online experience doesn’t inspire confidence.
While the RBI has acknowledged the possibility of such large-scale disruptions, it has unfortunately not reached out to consumers and consumer groups with a plan to manage such a situation. It has been estimated that monthly transactions worth Rs 2,000 crore may be adversely affected if prohibition is implemented.
It is surprising not to consider the point of view of the consumers as RBI is globally reputed to act very well in consumer interest. RBI has become very proactive in inviting comments from the public on draft notifications and reports. We would urge RBI Governor Shaktikanta Das to look into the matter urgently and put in place robust processes within the regulator to engage regularly with consumer groups and consumers while making decisions affecting consumers at large. Consider the approach.
As a result of the circular, most of us are receiving messages from service providers that our e-mandate for recurring transactions will be discontinued from next month. Alas, no clarity exists on the steps that consumers need to take to continue availing the services by ensuring uninterrupted payments before the due date and avoiding penalties or closures.
Many service providers are also moving from short term monthly plans/packs to long term plans and as a result their prices are increasing. Such moves, a direct result of the circular, could disproportionately affect low-income consumers, by making services prohibitively expensive, and could be contrary to Mr. Das’s vision of inclusive and equitable recovery.
Clearly, RBI has the right intention i.e. to provide a secure payment experience to the consumers. However, security should not come at the cost of convenience and should not limit consumer choice. The regulator needs to avoid a top-down approach and work closely with stakeholders, banks, fintechs, merchants, consumers and intermediaries to ensure the transition to a more secure as well as consumer-friendly digital experience.
If automatic card-based recurring payments are turned off, there is no guarantee that consumers will shift to other modes (eg is i or net banking) and not seek assistance from third parties/agents to continue making card-based payments, which may expose them to security, privacy and financial risks. No awareness generation and capacity building initiatives are planned by the regulator in consultation with consumer groups to help consumers choose suitable digital payment modes.
Furthermore, prompting consumers to choose one provider over another not only distorts competition and makes the playing field unequal, but can also harm the digital payments ecosystem in the long term.
Further, the regulator has adopted a one-size-fits-all approach by mandating additional factor authentication for payments above Rs 5,000. This not only leaves consumers powerless, but also deprives them of the opportunity to make informed decisions to manage the risks associated with digital transactions.
Consequently, the RBI should refrain from taking decisions on behalf of consumers, irrespective of the right intent, and should allow them choice and de facto agency. Consumers should be free to choose the method of making digital payments, the amount they are comfortable transacting without additional factor authentication, and whether to store card details securely with merchants.
The regulator should be concerned with promoting adequate choices for consumers, facilitating innovation for a safe and seamless consumer experience and ensuring timely redressal of consumer complaints.
To its credit, RBI has been really pushing the industry to innovate and recently allowed Card on File (COF) tokens. This follows a strong push by stakeholders, including consumers, against the regulatory prohibition for storing card details with merchants.
As Mr Das will appreciate, this should not have happened, especially at a time when all stakeholders are expected to work together to ensure a robust recovery from the pandemic. We, consumers, industry and regulators, are in this together, and share a common vision of an inclusive and equitable digital society. We are ready to play our part, and sincerely hope Mr Das will too!!
The author is the Secretary General of Cuts International. CUTS’s Prince Gupta and Amol Kulkarni contributed to the article.