54. SI on Cards — SI Hub

In the last ‘payments digest’, I wrote about RBI guidelines related to SI on Cards (mandate on cards). So let’s revisit that… but before that, I recommend reading my earlier article on cards and SI on Cards.

I prefer reading books than listening… but when I got a 3 month free subscription to Audible,I thought ‘why not’ (free things excite us all… don’t they?). I registered myself and added my card for a free-trial.. Frankly, I didn’t like the experience, so I didn’t use the App (in-fact deleted it) and totally forgot about it for 3 months.

Then one day, I received an SMS from my bank about a Rs.199 debit and then, I got an email from Audible about the debit. I thought about unsubscribing but then I forgot about it. Then next month, again, Rs.199 debited but this time, I decided not to procrastinate and cancel the subscription…

I installed the App and logged in after password reset (frankly, the brain is not meant to remember passwords) but it turned out that cancellation can be done only on a browser and not from the App. So I logged in from the browser to cancel the subscription — I hit the cancel button and was prompted 3–4 times with “Are you sure?” and finally, I was able to unsubscribe. And now, I really hope that next month there won’t be any debit (I hope)

The above example is everything that is right and wrong with SI on cards.

Right:

• User doesn’t have to remember about payment dues and merchant will deduct funds on time

Wrong:

• User still need to be informed in advance so that they can opt out if not interested
• Make it easier for user to unsubscribe
• Don’t debit the card if customer has unsubscribed

RBI guidelines precisely want to address these points… in a nutshell, provide a convenient solution for merchants to pull the money on time and at the same time, provide a safety-net to the user.

Let’s look at bunch of guidelines that came around cards

Illustration: Guidelines (Chronological order)

Here is the final (as of today) summary of guidelines

• Coverage: All types of cards (Credit, Debit, Prepaid), Scheme (Visa, MC, RuPay, Amex etc.) (Included PPI wallets as well)
• Debit limit: Maximum of Rs.15000 per transaction (Since 16–6–22) (Note: Earlier limit was Rs.5,000 per transaction)
• First transaction (done for mandate registration) should adhere to 2FA/AFA (2nd Factor Authentication/Additional Factor Authentication)
• Pre-debit Notification: Issuing banks should send pre-debit notification to the cardholder at least 24 hour before debit and issuing banks should provide an option for the customer to opt out
• Post-debit notification: Issuing Bank should send post-debit notification to the cardholder
• Cancellation: Issuer to provide online facility for the cardholder to cancel the mandate (Customers can either opt only out of that particular mandate debit or can opt entirely out of the mandate. Cancellation of mandate should follow AFA/2FA
• Dispute Management: Separate dispute management process for recurring payments
• PAs and Acquiring banks should not add new customers to existing SI on Cards model from 1st April 2021 but continue to service already registered mandates (users)
• Deadline to adhere to above rules: 31st Sept 2021

This is one of those major guidelines related to online payments and looks like most players in the ecosystem missed/forgot/ignored till the last moment except for BillDesk.

SI Hub (by BillDesk)

BillDesk in partnership with Visa has built SI Hub which is designed to manage the card mandates as per RBI guidelines. Below is the working of SI Hub based on what I understand from the market (expect some updates in the future)

Architecture:

On one hand, each issuing bank will be on-boarded to the platform and on the other hand, SI Hub will have various acquiring banks and PAs who in turn on-board merchants. BillDesk will decide to whom they offer their platform.

Illustration 2: SI Hub Overview

Mandate Form:

Mandate form is the place that captures the mandate parameters such as mandate start/end date (or duration of mandate), periodicity (monthly, quarterly, yearly, as and when presented). Merchant or Payment Aggregator can build this page (Refer SI on Cards article)

Mandate Registration:

Illustration 3: Mandate Registration

SI Hub generates a unique SI Hub ID (Step 6) and the same ID will be used during the authorisation leg (so the issuing bank will know that the transaction is a recurring mandate one).

SI Hub ID will be used throughout the mandate life cycle for notification, debit, cancellation etc.

Mandate pre-debit Notification:

Illustration 4: Pre-debit notification

This leg has to be done 24 hours before the debit. Either merchant or PA can initiate the pre-debit notification trigger. If the mandate is valid (based on SI Hub Id), SI Hub will intimate the issuing bank to send the pre-debit notification to the cardholder.

Mandate Debit:

Illustration 5: Mandate debit

Merchant or PA will initiate the debit but before proceeding with the authorisation leg, SI Hub will verify the status of the mandate as the cardholder might cancel the mandate post receiving pre-debit notification. If the mandate is active, the authorisation is done (considering it is a recurring payment, the authentication leg is skipped i.e. no 2FA/OTP step).

Mandate Management:

• Cancellation: According to RBI’s guidelines, even cancelling a Mandate would require Additional Factor of Authentication. So next time when you are cancelling a subscription, you would be asked for an OTP sent by your bank and only then would the mandate get revoked. (Hope I wont run into my audible cancellation experience again)
• Mandate Modification: Any change in mandate (amount, periodicity and tenure) requires Additional Factor Authentication (it is like setting a new mandate)

Other important Points:

1. Settlement: Fund Settlement will happen similar to normal card transactions. Issuer to acquiring bank (to PA) to merchant
2. Commercials: Commercials will be dictated by acquiring banks (as PAs will use them to process). BillDesk will levy charges (for every activity) to PA or Acquiring Bank. PA or Acquiring banks will bake them into commercials and offer them to the merchant. Hence, commercials may change (%+fixed fee)

Limitations:

We are still far away from achieving the totally seamless, super secure, highly scalable recurring solution. Below are the limitations of SI Hub and also, of RBI guidelines:

• Number of issuers: SI Hub has to keep adding issuing banks. Thus, the total coverage of all the cards will definitely take time
• Amount Limit: Limit of Rs.15000 per debit (earlier limit was Rs.5000 per debit) is a challenge for high ticket transactions such as insurance premium.
  Option 1: Migrate such customers to eNACH
  Option 2: Stage multiple debit requests. Option 2 will add more challenges (think about it)

Update: On 16-June-2022, RBI revised the limit to Rs.15,000.

• Use cases: Pre-debit notification limits the number of use cases only to transactions that will happen periodically but there are use cases that may happen at random time (e.g. auto-top up of a wallet). Such cases cannot be covered.
• Sector Limit: The merchant on-boarding decision would still be with the acquiring bank and that won’t become liberal (e.g. only billers are allowed but not e-commerce merchants)

Competition Landscape:

RazorPay is building a similar platform along with MasterCard. And I am assuming that platform would also be similar to SI Hub (more on that later). Other PAs also might be trying to build similar platforms but I wonder if issuer banks will be interested to do multiple integrations.

But other Payment Aggregators can use BillDesk’s SI Hub and offer it to their merchants (if BillDesk agrees). These PAs can add some additional value such as schedulers, analytics, fancy dashboard etc.

I am a big admirer of BillDesk… they do not like to talk much (marketing noise) but even after twenty years they keep reiterating with their products/platforms/strategies that they are the dominant force to be reckoned with in the payments business.

Final note:

You will not be able to see the new flow anytime soon as (a) existing users will continue to work as per older model till Sept’21 end (b) SI Hub is still work in progress as issuing banks, PAs and merchants are integrating. If done right, recurring payments have a very high value across various sectors (billers, OTT, insurance, rentals etc.).

Recurring Payments are passive payments (set a mandate once and payments happen on their own). And all of a sudden, the recurring payments space has become ‘active’ with the boom in OTT, RBI guidelines and new platform solutions… hope more interesting things unfold in the coming days.

PS: I will update this blog when I come across actual screens/flows.