20. Recurring Payment Solutions

We all have cases where we need to make periodic payments to various entities

• Monthly utility, mobile, broadband & DTH bills
• Investments (Mutual Fund SIPs, Insurance Premiums)
• Loan Repayments including credit card bill
• Subscriptions (online content)
• Monthly donations to NGOs

In my view, there are two types in payments:

• Active Payments: Where user visits merchant’s website/app to make payment
• Passive Payments: Where merchant pulls money from customer without customer’s intervention

Note: A little offshoot of active payments could be ‘Reminder Payments’ wherein merchant sends payment link or collect requests to customer and facilitate payments

Till now, we covered many topics on active payments…. so let’s touch little bit on passive payments.

Coming back to the earlier point, we do not want to miss out periodic payments because in some cases it involves disruption in service and in others it may involve penalties. So won’t it be nice if such periodic payments are done on its own without much intervention of user?

That is when recurring payment comes into picture, where merchant can pull the money from customer’s account/card based on mandate given by customer. Recurring payment solutions provide better control on collections for merchant and customer will not be worried about late payments or missed payments

Nature of recurring Payments that we do

• Fixed Amount & Fixed Cycle: Here amount as well as periodicity of payment will remain same. Periodicity can be monthly, quarterly, half yearly, yearly etc.

Example: Monthly SIP or quarterly insurance premium

• Fixed Amount & Variable Cycle: Here the amount is fixed but periodicity can be random

Example: A user wants to auto top-up the wallet by Rs.1000 whenever wallet balance reaches Rs.250. Here top up amount remain same but periodicity is random as wallet may reach threshold amount any time

• Variable Amount & Fixed Cycle: Here the periodicity of payment remains same but amount may vary for every debit

Example: I pay my Vodafone bill every month but bill amount varies every month depending on my usage

• Variable amount & Variable Cycle: In this case, both periodicity of payment and amount varies.

Example: I can take Ola ride any time and my ride charge will vary every time.

Addressing Recurring Payment Scenarios:

Recurring payment solutions are available in both online (digital) and offline (paper) format that allow customer to set-up mandate on bank account or cards and merchant can pull the funds for respective account/card within boundaries of customer’s mandate

• Online Recurring Solutions: Standing Instruction on Cards, e-NACH, e-Mandate
• Offline Recurring Solutions: ACH, ECS, Direct Debit

Irrespective of their format, recurring solutions involve three main stages: Mandate Form filling, mandate registration and debit

A. Mandate Form Filling:

Customer to fill mandate parameters that define boundaries for debit. Mandate parameters are,

• Duration: Start and End date
• Maximum Amount per debit
• Fixed or Variable Amount
• Cycle/Periodicity: Monthly, Quarterly, Half yearly, Yearly and ‘As and when presented’

Note: Merchant can show pre-filled form that can be approved by customer or camouflage the mandate parameters and take consent from user. (I will cover these methods in next chapters)

B. Mandate Validation:

The mandate needs to be validated or customer’s credentials needs to be verified.

• Standing Instruction and e-Mandate: Customer to customer to complete a successful transaction
• NACH, ECS, Direct Debit, e-NACH: Mandate to be validated by customer’s bank

C. Mandate Debit

Once the mandate is successfully registered then merchant can debit the customer’s account/card within the boundaries of mandate parameter. Once amount is debited, merchant will receive settlement.

Quick comparison of various recurring payment methods.

Next: Let’s start with Offline Recurring Payment Solutions