How has e-mandate introduced by the RBI necessitated LMS in banking?
The LMS in banking has become a major need of such organizations because the compliance authorities have become vigilant.
The banks have to operate as per these guidelines and their procedures should be in line with them. Now a new rule has been introduced by RBI to protect banking customers who integrate their accounts with UPI. The banks can’t deduct payments from a customer’s account as per the recurring payment option. This is a relief for so many customers whose accounts were debited for funds as part of utility bills and OTT recharge payments.
Earlier the deadline for the banks to initiate action as per this change was 31st March 2021. But the deadline had been extended because some of the members of the BFSI industry could not introduce changes so soon. This was due to the inconvenience caused to the OTT industry, which had been receiving recurring payments from their customers through credit cards. Although banks were willing to make the changes, the OTT providers were not yet ready, due to which RBI had to enhance the deadline. However, the banks didn’t make any recurring payments for a customer from 1st April, through the latter’s credit cards. Instead, the customers themselves made such payments to the merchants, such as OTT platforms directly.
Hence the new deadline was the 30th September of this year.
That is why LMS in banking is necessary so that no compliance rules are broken by banking executives.
It is up to the customer now to opt for the e-mandate facility at the time when they register for their credit card. This implies that they can choose to validate recurring payments through their cards through the AFA procedure. If a customer has not taken such a facility, no recurring payments can be made through his credit card.
What is the e-mandate procedure?
As per the change, the banks would have to ask the customer before making any payments through the additional factor of authentication (AFA). As per this practice, the banks will have to take a customer’s approval 24 hours before auto-debiting his account. It’s because the customers might no longer want to continue with the service and hence the banks can’t make payments on their behalf. The customers can be asked for their readiness for such transactions either through an email or an SMS as selected by them. Such notification will inform the customer about the relevant transaction details such as the merchant’s name, the amount of the transaction, etc. The customer can cancel the transaction.
Well, the banks will have to take the customer’s special consent for payments for amounts more than Rs 5000. The agreement procedure to be followed by NBFC’s and banks would include sending an OTP to the customer before making any such payments.
But these new auto-debit rules don’t apply to the payments for mutual funds and loan installments and banks don’t need to seek the prior consent of customers for such recurring payments. However, the bank making such auto-debits should be the registered bank for such payments.
This kind of modification where the customer’s approval is mandatory was introduced first for card-based transactions in August 2021 by the apex bank. This step has been taken by RBI to bolster the confidence of the public in the financial sector of our country.