How Single block multiple debits will impact your financial planning

Single Block Multiple Debits (SBMD) in UPI have been proposed by RBI for consumers who are most active in using services from a particular service provider like Amazon, Flipkart or are regularly doing SIP's. Here an amount is blocked in the account using UPI for a particular vendor and whenever a consumer does a purchase that amount is deducted from the blocked balance once the goods or services are received. e.g.- a consumer blocks 5000 for Amazon in his account, and now he can do multiple purchases with the available balance. This applies for SIP's or other modern investment apps and loans from a bank or NBFC's.

We spoke to Mr. Balaji Jagannathan, Co-founder & Director, Paycorp.io to shed more light on the feature

How Single block multiple debits by UPI can be leveraged by companies and individuals?

When you shop online you choose cash on delivery sometimes. When you do this, the merchant has no certainty that you will pay and take delivery of the product/service at your doorstep. Therefore, the merchant cannot book this transaction until the money is deposited to their account (not even when the delivery person receives cash from you). Single Block Multiple Debit is a new digital payment instrument under UPI to mitigate this uncertainty for the merchant.

The merchant may now request to block the transaction amount in your account at the time of online purchase and debit it from your account once you confirm delivery. There is also another interesting benefit, but this time to the customer. The customer may now block a specific amount in her account for a specific merchant. The merchant can apply multiple debits according to the value of the purchase until the entire blocked amount is debited. Thus the customer can now plan her spending more efficiently and avoid spending on lower priority purposes or over spending. 

There are many scenarios where this option can come in handy. Firstly, consumers can utilize this option to keep funds saved for a future high-value purchase. Secondly, purchase of shares in IPO market where bid amount is blocked until share allotment can use this SBDM option. And lastly, purchase of Govt securities under Retail Direct scheme can use this option.

Will SBMD locks the money? In case of an emergency can a consumer withdraw it?

It is important to note that when an amount is blocked in your account only the remaining amount is available for all other transactions. So it is important to note that the amount won't be available even for emergency purposes unless the block on the transaction value is removed. It is not yet clear, under what circumstances can the blocked amount be released for use by the customer for other than intended purposes. However, it is likely that the block will be removed when the merchant agrees that the transaction is cancelled.

How different/similar it is from the auto debit facility?

It is also important not to confuse the Single Block Multiple Debit option with the UPI auto-debit facility. UPI auto-debit is simply an instruction to debit the account of the customer for a specific amount at a specific frequency or specific date of each month. It is possible that the account does not have enough balance on the date of debit. Whereas, under SBDM the customer blocks a specific amount from her total balance to use for a specific purpose or for a specific merchant. The customer must have a sufficient balance in her account at the time of blocking.

SBDM is a great tool for financial planning. Investors can identify the financial product they want to invest in and block the amount against the specific product. This will enforce the habit of financial discipline toward a better future.