No OTP authentication by RBI could be dangerous

The Reserve Bank of India said that no one-time password (OTP) based authentication will be required for payments made up to Rs 1 lakh. As per the announcement, the service can be used for buying mutual funds via systematic investment plans, paying insurance premiums, and making credit card payments, among others.

Before this new mandate, OTP-based AFA (additional factor of authentication) was applied when an auto payment via UPI exceeded the Rs 15,000 limit.

As per RBI Governor: e-Mandates for making payments of recurring nature have become popular among customers. This announcement will further accelerate the usage of e-mandates.

It will Benefit the insurance companies and banks with:

· Reduced administrative burden: Eliminating OTP requirements for recurring payments like insurance premiums simplifies the process and reduces the workload on banks and insurance companies.

· Improved operational efficiency: Faster and smoother transaction processing can lead to cost savings and improved customer experience.

· Increased sales and renewals: Auto-debiting can increase renewal rates for insurance policies and other recurring subscriptions.

But the Potential dangers for customers are:

· Increased risk of fraud: Without OTP authentication, unauthorized transactions become easier to execute. Fraudsters could potentially gain access to customer accounts and divert funds.

· Unintentional recurring payments: Customers might unintentionally activate auto-debit for subscriptions they no longer want, leading to unwanted recurring charges.

· Reduced control over finances: Customers have less control over their finances with automatic payments, making it harder to track spending and identify errors.

· Limited dispute resolution options: Disputing unauthorized transactions in the absence of OTP verification can be more challenging for customers.

Specific concerns for insurance renewal are:

· Cases of insurance companies fraudulently renewing policies without customer consent have been reported, raising concerns about potential misuse of the increased auto-debit limit.

· Customers might be unaware of auto-renewal clauses in their policies, leading to unexpected deductions from their accounts.

While bringing respite for insurance companies and banks in terms of administrative efficiency, does raise concerns about potential dangers for customers. This policy may lead to further Financial crime by the Insurance companies and there are several cases been reported earlier.

S Mohini Ratna, Editor, VARINDIA