In the last decade, India has made colossal progress in digitization, especially in the world of payments. The RBI has played a major role by introducing initiatives that ensured convenience and security while making payments, and the latest notification issued on August 21, 2019, was no exception.
The notification states that recurring transactions can be made using debit cards, credit cards, and prepaid payment instruments up to a total amount of Rs. 2,000, starting September 1, 2019. This permission was granted in response to appeals made by numerous banks requesting this function for easier transactions.
What has changed?
Prior to the notification, recurring payments via standing instructions were available only for credit cards and bank accounts. Now, the customer can process an e-mandate to authorize merchants to debit money on a recurring basis. Two-factor authentication (2FA) needs to be completed, but only during the first transaction.
Before we dig any deeper, let’s start with the basics:
1. Recurring payments: These involve cash being debited automatically on a recurring basis after the customer gives permission to the merchant.
2. E-mandate: The e-mandate is a consent form issued by the customer to a third party to auto-charge a recurring fee from their bank account.
3. Auto-charge: This is when a customer’s card gets automatically charged as soon as an invoice is created.
The popularity of credit and debit cards:
Total card transactions and transacted amounts in India are on the rise.
Looking at the RBI’s card statistics in India over the past year, it’s evident that credit and debit card usage is exponentially escalating. This means recurring payments using cards will be a hit in upcoming years.
Why do businesses prefer recurring payments?
What this means for your business:
This new announcement will benefit SaaS providers, rental services, membership and consultancy services, internet service providers, and subscription box businesses. Subscription businesses, in particular, spend a substantial amount of their time and effort on retaining customers. This new announcement will help prevent customer churn as well as making the subscription experience more convenient and secure, so it will be a big win for subscription businesses.
For businesses that use a traditional, individual-sale model, it’s worth considering the fundamental shift that has already taken place in India’s economy as more users shift towards usership rather than ownership. With this new announcement offering an even bigger boost to subscription businesses, it is essential for businesses that function on the traditional model to venture into the subscription model to stay relevant and up-to-date in the eyes of their customers.
Overall, this announcement is a clear green light for businesses to experiment and adapt to emerging trends by streamlining their payment collection process and promoting a secure and user-friendly experience. It’s easy to see that this initiative will be groundbreaking for businesses in India.
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