Ronald Reagan had a unique ability for succinct eloquence. He once said, “The nine most terrifying words in the English language are: I’m from the Government, and I’m here to help.” The maxim often rings true for India’s regulators.
This month, the Reserve Bank of India shut down a consumer convenience provided by banks and cards to those who had happily adopted the digitisation of banking and payments and businesses which expanded their digital footprint to grow. Effectively, consumers who had installed auto-debit for payment of monthly recurring payments, be it the phone bill, electricity bill, maintenance dues et al, have to run around a mulberry bush of new regulations to re-install order in their lives. The explanation, breathlessly enunciated in one sentence of 66 words, is a collector’s item for students of linguistics and those tracking punctuated legalese by regulators.
For those equipped with skills to wade through verbosity here it is: “Keeping in view the changing payment needs and the requirement to balance the safety and security of card transactions with customer convenience, it has been decided to permit processing of e-mandate on cards for recurring transactions (merchant payments) with AFA during e-mandate registration, modification and revocation, as also for the first transaction, and simple/automatic subsequent successive transactions, subject to conditions listed in the Annex.”
The layman’s explanation, helpfully provided by banks, merchants and card issuers, is that the RBI has taken on the role of protecting consumers — a role that is not quite explicitly stated in the 63-word preamble of the RBI. The preamble tasks the RBI with issue of notes, keeping reserves, securing monetary stability, operate currency and credit system, maintaining modern monetary policy of a complex economy and price stability while keeping in mind the objective of growth. Even if one assumes the onus is implicit the evolution of regulation is best when inclusive, bottom up and collaborative.
There is no doubting the pious intent of the policy. Online platforms frequently use bait and tackle marketing models to lure customers — offer free or low-price trials and reel in to gouge value. While merchants may present ‘consumer consent and the principle of caveat emptor aka buyer beware’ as defence, the fact is there is an info asymmetry in play given the evolving state of Indian market. Apparently, many consumers who had entered into auto-debit transactions were being charged even after opting out and were being defrauded.
Conceptually, those trapped in dubious or suspect transactions were looking for protection and exit. Card issuers do allow users to log on to the site and dispute/invalidate transactions with reasons. The question is whether this mechanism is universally available and was availed and what the outcome was. Maybe the mechanism was not available or merchants were over-riding it. It is also unclear what steps/options did banks/card issuers or merchants offered to assuage the wronged. The answers, to quote Bob Dylan, are ‘blowin’ in the wind’.
Ordinarily, regulators would make a robust case by presenting data or a study to elaborate on these rather serious violations by merchants and card issuers. For instance, what is the magnitude of the complaints, what are the domains where these occurs and most importantly whether these incidents resulted in intervention by either the regulator or the bank or the issuer and what action was taken. Data on the incidence of the fraud and findings of studies, if any, by the RBI seems to be locked in the vaults on Mint Street in Mumbai.
Be that as it may, what do the proposed solutions state? As per the new rules, customers will register for additional factor authentication for standing instructions for payments up to Rs 5,000. For payments over Rs 5,000, the banks will notify customers to issue consent for every recurring payment as it is processed through a two-factor authentication.
Ideally, the move to install safety and control for the customers should have catalysed innovation to make the landscape competitive and bring down costs. The new guidelines have been on the anvil since August 21, 2019. The key aspect of the rules is to give customers control over their transactions. It makes one wonder if this is the best template the regulator and bankers could conjure in over two years.
Modern payment systems are designed to reduce friction for a seamless experience. The new guidelines have effectively introduced friction into the process — this when one of the aims of the regulation review authority is to reduce redundancies and bring down compliance burden. How the new regulations, verily an ‘avial’ of confusion to say the least, play out is to be seen. Clearly, this is a lesson on how not to recast regulation to modernise payment systems!
Tailpiece: Since India’s regulators are keen on protecting consumers, here are a few suggestions. The RBI could find ways to curb the practice of mis-selling across banks. The TRAI may want to issue a grand challenge on how to block unwanted calls and messages. Stock exchanges and SEBI could find ways to trap ‘stock tipsters’ instead of sending motherhood messages. The IRDAI could set up a system to prevent insurers from goading policy holders to jump ship.
Author of The Gated Republic, Aadhaar: A Biometric History of India’s 12 Digit Revolution, and Accidental India