Traditionally, India has been recognized among the most notable cash denominated jurisdictions in the world. While the government has sought to promote digital payments among the masses, the transition to cashless digital transactions has been slow and gradual. However, with the onset of the pandemic, digital payments in the country have grown exponentially.
AFA Restrictions
Recurring transactions are commonly used by customers for enabling periodic payments for digital content subscriptions, utility payments, etc. Most digital service providers operate on a subscription model wherein debit/credit cards of customers are auto-debited based on pre-determined billing frequency. Such deductions are automated and do not require the customer’s pre-approval or a requirement of presenting the card at the time of debit.
To secure recurring online transactions, the Reserve Bank of India (RBI) introduced the concept of ‘Additional Factor of Authentication’ (AFA) in August 21, 2019 (AFA Circular). This AFA Circular indicated that auto-debits of customers’ cards (for both domestic and cross-border transactions) would no longer be permitted, and every such transaction would be subject to a compulsory e-mandate registration. Scope of the AFA Circular covers all recurring transactions, including transactions initiated through cards or pre-paid instruments (PPIs), wallets and Unified Payment Interface (UPI).
Please click here to read the full article by Probir Roy Chowdhury & Shramana Dwibedi, published in Mondaq.
Probir specializes in Corporate Commercial, Venture/Private Equity and Information Technology/FinTech. He has been involved in corporate transactions focused on the high technology industry including cross border Mergers & Acquisitions.