RBI’s New Guidelines on E-mandate to Add to the Distress of Consumers

The week, October 08, 2021

There is a need for a flexible and innovative regulatory framework that prioritizes customer experience, especially with the uptake in online purchases during the festive season

The Government’s vision of ‘Digital India’ has brought an increasing shift towards digital payments or online ‘contactless’ modes of transactions, further accelerated by the pandemic. This has ascended the growth trajectory of the Indian digital payments industry to US$700 billion by 2022. Digital payments have taken a centre stage and with the upcoming festive season, it is expected to achieve a three-fold increase in online spending according to a survey conducted by LocalCircles on festive spending. Boosts such as festival sales have been facilitated by a convenient digital payment infrastructure which is at the heart of any electronic marketplace. However, the new policy of the Reserve Bank of India (RBI) on auto-debit can hinder the shopping experience of customers and make compliance and adherence difficult for businesses to sell their products and services.

The new auto-debit norms that came into effect on October 1, have imposed a stringent regulation on merchants, leaving the process of carrying out transactions entirely with the banks. While the merchants are conducting the business, the final action required to complete the purchase falls under the realm of the banking entities which aren’t fully equipped to abide by the introduced guidelines. This reverse engineering, if not modulated, will disrupt the digital payments ecosystem, further slowing down the Prime Minister’s vision of ‘Digital India’. The additional hassle, compliance, and adherence will not only affect the shopping experience of the consumers but also affect millions of businesses and hamper the growth trajectory of the fintech sector in the country.

According to the LocalCircles survey, 60% of households plan to spend during the festivities with digital payments as the primary and preferred payment mode of transaction. While this makes it essential for payment platforms to enhance technology innovation and develop a robust security system that effectively safeguards consumer data, the introduction of new guidelines have questioned the functionality of e-businesses which is already reeling from the effects of the ensuing COVID-19 pandemic.

The Dialogue organized a virtual consultation session to better understand the growth of e-mandate in India and how its implementation will affect consumers by creating additional challenges for an uninterrupted and secure consumer payment experience. Speaking on this, Mr. Kazim Rizvi, Founding Director, The Dialogue, said that it is crucial that there is no trade-off between convenience and security – both should be achieved simultaneously for smooth online transactions. He further pointed out that there is a need for a clear and nuanced approach with respect to the latest guidelines to cater to consumer needs in a secure and timely manner. Mr. Ram Rastogi, Digital Payments Strategist, also highlighted that digital payments in India are growing at the pace of 5x due to the government and RBI’s efforts in encouraging progressive policies such as UPI. He brought to attention that safety and security becomes equally important as customer convenience in the digital payment space.

Ms. Shreya Suri, Technology Advisory Partner, Indus Law, said that “Ensuring the security of transactions is a priority. However, since we don’t have a data protection law in place, the RBI aims to regulate the digital payments space through these rules which are adversely impacting many consumers and businesses in terms of disrupting seamless digital payment. We look up to the EU’s General Data Protection Rules as the benchmark for ensuring data security and localization and yet the legislative framework for the same is weak in the Indian context.”

Mr. Amol Kulkarni, Director, Research, CUTS International, highlighted that, “The intention of RBI with the new guidelines is to provide more agency to the consumers. However, the unintended consequences could be adverse in such a way that it may impact MSMEs, nano and differently-abled entrepreneurs who are slowly adapting to the digital ecosystem. 29% of users are number-illiterate in India, and they’ll be left with no other option if digital payments become inconvenient. There is a need to consult consumer groups to understand the issues on the ground, a conversation with stakeholders, and an analysis of global best practices before rolling out such guidelines.”

There is a need to introduce a mechanism that promotes and supports innovation in the digital payment sector. Stakeholders must come together to create a policy framework that enables customers to ensure security while not compromising convenience and also allows the fintech and banking sectors to have clear roles that help promote the ecosystem.

About The Dialogue

Recognised as one of the top 10 think tanks to be watched out for by the University of Pennsylvania, The Dialogue creates coherent public policy discourse in India to solve unique problems which arise as a result of rapid technological advancements in the 21st century. It has a vision to drive a progressive narrative in India’s policy discourse. The Dialogue’s mission is to bring policy to the people and subsequently connect them with issues that really matter in today’s world, with the long-term objective of driving reforms through informed public opinion and citizenry participation.

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