Being a lending focused startup is hard business and from all our conversations with our customers both in lending and subscription-based companies we realized that the hardest part of both of them was to get the recurring payment in, i.e. EMI for lenders and monthly subscription fee for SaaS products from the customers.
The problem is quite similar in case of utility bills too, the customers tend to forget the deadline leading to the disconnection of services not because she didn’t want to pay, ultimately leading to irate customers and a bad reputation for the company.
Here is the question, how do we make sure that payments are made on time, EMIs are paid every month and subscriptions aren’t disconnected.
In this article, we list down 5 ways businesses and customers can automate their subscription or EMI payments,
Credit Card based recurring payments
In most cases of subscription-based payments, a credit card is the expected mode of payment. In this case, the first transaction is processed using two-factor authentication as per RBI norms. The customer is then asked to give consent before making the payment, authorizing the merchant to charge the card as per the subscription plan.
Like in the case above the first payment can be a token amount to verify the credit card, which is usually credited back by the vendor to the customer’s account.
Though quite easy to implement, we might have to consider that credit card accounts for about 29% of all transaction volumes while the remaining is lead by debit card payments.
As such if your target market consists of a majority with no credit card access this might not even work for you and in case of lending EMI payments cannot be paid via credit cards anyway.
ECS
Electronic clearing house officially is an electronic mode of fund transfer used for bulk debit or credit user accounts. ECS credit is usually used by organizations to distribute salaries, dividends or any other kind of payments to the users, while ECS debit is used by individual customers to make regular payments.
To set up ECS, a merchant would have to get a signed mandate from the customer authorizing them to deduct pre-defined payment from the customer’s account. A copy of such authorization is shared with both the customer and merchant bank before ECS is activated on the customer account.
Standing Instructions
Standing instructions are a way of making an automatic payment of a fixed amount to a loan, bill, or credit card at the same time every week or month. It can be made from your savings or checking account and is most commonly used to make payments to a mortgage, car loan, or to pay bills. In case of standing instructions, a customer can set it up herself using her net banking account credentials. As of now standing instructions can only be set by the customer directly from her account via either debit card or net banking.
eNACH
National Automated Clearing House (NACH) is a centralised system, launched with an aim to consolidate multiple ECS systems running across the country. It provides a web-based solution to facilitate interbank, high volume, electronic transactions which are repetitive and periodic in nature.
Learn more about eNACH and eMandates in our article here.
UPI 3.0
Launched in 2016 by NPCI, UPI allowed the transfer of funds between bank account using a mobile platform and via a unique UPI ID assigned to each user. In its latest version UPI 2.0, allowed users to create one time mandates which allowed them to pre-authorize transactions from a merchant. The amount is then deducted and transferred to the merchant at the time of actual purchase.
The latest version expected to come out in 2019 is expected to have a functionality for pre-authorized recurring payments. Though as of now a merchant can only raise payment requests from a customer via the UPI app which when approved by the customer payment is received and sent to the merchant.
If you are business we recommend using credit card-based payments, eNACH or UPI 3.0(whenever it is available), all of which are completely online and can easily be integrated into your mobile or web apps.
Until next time.
