A Comprehensive Guide to Recurring Payments in India

Subscriptions and recurring payments

More businesses in India are adopting subscription and recurring payments based business models. The benefits of a subscription model are clear: steady cash flow, predictable growth and inventory management, and reduced cost of acquiring customers, as well as reduced retention costs. 

The concept of recurring payments isn’t something new, and it wasn’t invented by sensational brands like Netflix, or Spotify, or by SaaS brands like Slack, Zendesk, etc. However subscriptions and recurring payment based business model is a highly effective method of conducting business with a generation that is increasingly preferring subscribing to a product rather than buying the product. 

And since the entrance of consumer-centric brands in India like Netflix, Apple Music, Amazon Prime and others, the subscription economy in India is seeing a major push. 

On the B2B side, subscription models aren’t that new to India, with brands like Microsoft, Google and Amazon Web Services already offering a subscription model to procure platforms and tools like web servers, email clients, word processors and others, which are an imperative part of business operations. 

In India, while recurring payments have been around for offline transactions via ECS and NACH Mandates, the recurring payment model for online transactions hasn’t picked up pace in its early days due to the added restriction of 2-factor authentication, made mandatory by the Reserve Bank of India. But, that all changed since the rollout of eMandates and the RBI notification on recurring payments.

ECS and NACH, by the National Payments Corporation of India (NPCI), provide the underlying infrastructure to collect recurring payments from Indian consumers.

With these policies and new technology going into effect, a lot of businesses in India will now be able to collect recurring payments, which is not just a win-win for the customers but also for the business. 

Let’s first discuss the industries and use-cases where the subscription-based model have proven to be highly-effective and key to business growth.

Recurring Payments: Which industries benefit from it the most?

Recurring payments or subscriptions can be beneficial for a lot of industrial niches –

  • Entertainment and content providers – The widest exposure consumers have had towards recurring payment models (subscription-based services) have been in the content and entertainment segments. Most of you reading this article would already be familiar with the business model that Netflix, Amazon Prime, Medium, Spotify and Apple Music runs on. They charge you somewhere between Rs 100 to Rs 1000, for an annual or monthly charge and you can access all available content on their services without any additional charges.

    In fact, even content-based services in India like Hotstar, HooQ, Zee5, provide subscription models via digital wallets or credit cards, lacking vital payment modes like debit cards, UPI or net banking. 
  • SaaS and tech businesses – Saas businesses are another niche that could potentially benefit a lot from subscription-based models. This has been evident with the behemoth growth of brands like Slack, Freshdesk, Intercom, Salesforce, and others. The model has shown such promise that even brands that used to generate revenue from one-of sales of their software pivoted to a recurring-payment model for the same. The prime examples of this switch have been Microsoft (MS Office), and Adobe.

Recurring billing for SaaS products is usually on usage or per user basis.

  • Financial and healthcare services – Financial and healthcare services have been one of the prime examples of the recurring payment-based model. General insurance, car insurance, loan-repayments, SIP and mutual fund investments, and more. These models have paved way for others niches to rethink their strategy.
  • Utility Billing  – Utilities like electricity, water, gym membership, and more aren’t traditionally considered as recurring billing, as the amount is dynamic for most utilities yet when considered the billing frequency, these expenditures have to be paid at a given date or you risk policy lapse and fines. 
  • Retail and eCommerce – Subscription and recurring payments are rapidly making inroads into the retail and eCommerce sector as well. Brands like Birchbox and Dollar Shave Club showcased how a subscription-based service could be utilized to build a billion-dollar empire. These stories have acted as a catalyst for other brands to introduce their own subscription models.

So exempting SaaS, we haven’t seen a lot of brands implement a subscription model. Let’s look at the reasons as to why this has been a pertinent issue in India.

Why do Recurring-Payments have a Slow Adoption Rate in India?

2 Factor Authentication

To protect unauthorized access and fraudulent transactions for the Indian Citizen, the apex bank in India, Reserve Bank of India, laid out guidelines for card networks like Visa, Mastercard, and Rupay to adopt 2-factor authentication.

Each online transaction made via credit cards, debit cards or net banking with an Indian registered store, has to be authorized via a 2nd step. The 2nd step involves an OTP via SMS or call, which the card-issuing bank uses to authorize the payment.

This secondary step while adds a layer of additional security for your customers, also makes it impossible for businesses to offer recurring payment models to their customers as every charge has to be accompanied by a secondary OTP. 

Lack of Digital Options

For a long time, the only possible way of making recurring payments was possible by ECS Mandates. The process involved the biller collecting a  physical form ie, a mandate and submitting to a bank.

And as you can guess, this method isn’t very efficient, neither for customers nor for businesses. 

Instances, where ECS Mandates are used regularly, are loan repayments, systematic investment programs (SIPs) and so forth. However, for high frequency and lower value of transactions, like short term loans, paper mandates turn out to be less effective and costly.

Due to the physical nature of mandates, the majority of the businesses all over India, can not implement recurring billing features to their offerings and product, as it is inconvenient for the Indian consumers to put forth mandates for these payments. 

Additionally, this procedure ads further obstacles like financial stress and operational overhead for merchants.

Current Solutions 

While recurring payments have been slow to get adopted until now, financial service providers and regulators have made efforts to expedite recurring payment methods.

eMandates and ECS Mandates

e-Mandate and ECS mandate are payment services, initiated by RBI and the National Payments Corporation of India (NPCI). They provide the underlying infrastructure for businesses to collect recurring payments.

eMandates have been introduced to help businesses, merchants and individuals to electronically process recurring payments rather than filling up paper ECS mandates. The user needs to authorize recurring payments via a mandate by doing a one-time transaction using a debit card or internet banking.

ECS mandates are paper mandates, the process involves you to submit a paper form to initiate automated payments, which in this digital era is cumbersome for a lot of businesses, merchants and individuals. 

We have written a detailed blog on the same, covering eMandates and ECS mandates here.

Using International Payment Gateway

Due to a lack of regulation regarding debit cards and net banking, a lot of providers accept credit card for auto payments. A business can circumvent 2-factor authentication and enable recurring payments by using an international payment gateway.

 This is apparent with brands like Netflix, Google play store, Apple app store charging user credit cards for auto-debit. Most SaaS-based companies also allow people to subscribe to their service with the use of credit card. However, such SaaS companies and merchants (like Apple Store, Google Play Store) are usually based outside India and thus able to use an international payment gateway.

Standing Instructions on Credit Cards

Another way recurring payments have been around in India for a while is standing instructions on credit cards. While standing instructions for recurring payments on credit cards have been possible, banks have been cautious about enabling these services and only the largest service providers like telecom operators have been allowed in the past. Therefore most payment gateways have been unable to offer subscription-based payment options to small businesses and startups, especially for international transactions.

However, subscription on credit cards is now being allowed much more often by banks and payment service providers in turn.

UPI 2.0 

With the introduction of UPI 2.0 by the National Payments Corporation of India (NPCI), customers will be able to set up automatic payments with one-time electronic mandates, therefore paving the way to pay for recurring-models or subscription-based services directly through their savings account. 

UPI 2.0 also links to your overdraft account, helping the users borrow a certain amount from their banks, like a credit card. 

Introducing Subscriptions by Cashfree

Built to allow businesses to avail the recurring payments infrastructure, Subscriptions by Cashfree is a comprehensive recurring billing solution for businesses operating in India.

The platform accepts all major mode of payments and is available to merchants of all shapes and sizes. Mode of payments supported:

  • Credit Cards
  • eMandates (Debit Cards, Net Banking)
  • UPI (Coming Soon)

Subscription by Cashfree is built keeping in mind all kinds of scenarios involved in recurring billing ecosystem – 

  • Flat Rate Model – Automate collecting fixed amount payments as per predefined time schedule.
  • Usage Model – Automate periodic billing based on your user’s actual consumption.
  • Flat + Overcharges Model – Simplify billing where amount includes fixed and variable components.

Learn more Subscription by Cashfree.

Get Started with India’s best Recurring Billing Platform
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Now, the question remains, what does a merchant, or a consumer gain out of recurring payments or subscription-based mode of payment?

Let’s take a look at the benefits of a subscription-based business model:

Subscription Payment Model: Advantages for Merchants

There are plenty of reasons why a merchant should be looking forward to incorporating a recurring-payment model for their business, here are the most prominent ones that you should consider:

  • Improved Upsell and Cross-Selling opportunities – A strong case for recurring payments and subscription model is an increase in opportunities for auxiliary sales and marketing operations. In fact, the nature of recurring models are for consumers, therefore freeing up space for additional expense for bundling further products into a plan. For consumers, the avoid the “sticker shock” phenomenon, and a recurring payment plan gives them an option to play and customize their needs based on requirements and therefore scaling becomes easier. For instance, brands like Netflix, Spotify have a variety of options for their customers, like ad-free streaming, offline streaming, or HD streaming and 4K streaming. Once a customer shows loyalty these brands can push higher plans with legitimate added advantages, improving revenue and sales figures drastically.
  • Allows businesses to forecast future and plan realistically – A great advantage of recurring billing is the fact that CFOs have greater control in predicting future cash flow and financial aspects realistically. It reduces the risk of sudden cash crunch in your organization and also provides your investors and stakeholders accurate valuations of their prior investments and growth projection.
  • It reduces decision points – In a customer’s life cycle there are multiple points before a sale is made, where the customer can say no. This can be aggravated if you are not a part of the recurring model of generating revenue, as every time there is a sales decision on the hands of your customer, they might seek an alternative, find the charges exorbitant and more. On the other hand, a customer who is on a recurring model will be charged automatically at the point of their billing cycle, reducing the chances of a “no”.
  • It reduces acquisition cost – One of the most effective benefits of a subscription or recurring model is the low customer acquisition cost. As most recurring models adopt a fairly lower price model (Adobe, for example, used to charge around $200 for Photoshop, until they switched to a more friendly $10 subscription model for the same), customers are more readily happy to convert.  
  • Makes life easier for consumers – Recurring payments also make a consumer’s life easier, especially when it comes to utility payments, insurance premiums, and other traditional payments. Rather than setting up reminders, being paranoid, with the help of eMandates and eNACH, consumers can setup painless and automate payments seamless for periodic and timely payments. 

Apart from these points, The Economist has reported that a lot of current businesses that use this mode of revenue have seen these advantages as the key indicator of why the model works –

Here are a few pointers on how you can select the right partner to collect payments from your customers.

Selecting the Right Recurring Billing Partner

Building a recurring payments solution entails integrating with banks, payment infrastructure providers on one hand and offering plug-n-play modules for a business on the other. It is important to find the right recurring billing solution:

The right and an alternate way to do this right is to tap into an established payment service partner. The right partner can allow you to have a lot of flexibility as well as a personalized solution for accommodating all your requests.

There are a couple of things to remember when selecting the right billing partner – 

  1. Payment Options – It is critical to find a partner that supports payment modes and currencies that a businesses’ customers use. A comprehensive set of payment modes and currencies supported is a direct impact on the revenue.
  2. Billing Models – Subscription-based models can also differentiate based on value-added services, additional requests, change in plan mid-term and more. Therefore when selecting the right model you should pay attention to different billing structures your partner provides. 
  3. Reliability and support – Since checkouts and billing is one of the most crucial parts of your business, reliability has to be top-notch. Give priority to partners who are reputed to have 99.99% SLAs as well as have round the clock support on multiple channels like chat, telephone, and email. 

Conclusion: Subscriptions and Recurring Payments

Recurring payments are an efficient way for a variety of businesses to offer themselves consistent with continuous and stable growth. At the same subscriptions provide a superior customer experience by reducing friction that occurs by repeated manual payments at the end of your agreement. 

Recurring payments are predictable, stable, and can be assessed for the future with a high level of certainty. Future budgets and strategies could be finalized by realistically looking at churn rate and the revenue you are sure to generate. At the same time, it helps you develop contingency plans for churning accounts without taking a big hit. 

If you have products or services that customers purchase and use repeatedly, consider recurring payments. You’ll find it makes your life easier while creating a predictable amount of income for your business.

One of the best ways to implement subscriptions and recurring payments is to start with Subscriptions by Cashfree. Learn more here.

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