The Origin & Evolution of NACH Mandates & Recurring Payments

Remember the time when you signed a document mentioning your EMI amount when you bought a car? Guess you missed it, considering tons of documents you signed.

How about the time you invested on a wealth-tech platform or directly with an AMC for a monthly SIP? Maybe — you remember adding your debit card information.

How about the time when you had to set up your 4K Full HD subscription on Netflix using UPI? Now — you get it. You did it for the first time on Netflix of late.

And what about the time when all your active bill payments on your credit cards failed for insurance premiums? Yikes — that was one heck of a frustrating experience.

So, what’s common about all these scenarios? It’s not cards or UPI; heck, it’s payments, right? Obviously, but what’s different?

It’s recurring payments, also known in the Fintech jargon as Mandates.

What is a Recurring Payment Mandate?

Simply put, an instruction.

A mandate is a consent by an individual or business to consent to debits at a predefined frequency to a specific business entity, like a Lender or an Insurer, for example.

Mandates can be taken in various fashions electronically using ENACH or physically using a physical NACH to a specific corporate, backed by a relevant authorization mechanism to be audited or approved by the customer’s sponsor bank (the account where the payer holds the bank account).

What is the Objective of Recurring Payments?

It’s pretty simple. To ensure payments, primarily to merchants or business entities, happen promptly without minimal hassles to the payer, but with a level of authentication. Let’s deep dive into the basics.

Recurring payments came into existence primarily to facilitate use-cases that required individuals or businesses to repeatedly pay other companies, thus creating a certain element of friction in terms of user experience. Some important use-cases include SIP installments, Loan EMIs, Insurance premiums, and subscriptions.

What are the Types of Recurring Payments?

Recurring payments exist across the board on other payment infrastructures, each designed to power specific use-cases. Let’s look at some of them.

ECS Mandates

ECS Mandates are primarily payer-initiated, where a biller is added to the payer’s bank account by the payer.

NACH Mandates

NACH Mandates are primarily payee initiated where the payee creates a directive authorized by the payer through specific modes

UPI Mandates

These are primarily payee-initiated mandates where the payee creates a directive authorized by the payer through UPI.

Card Mandates

The mandates are primarily payee initiated, where the payee creates a declaration authorized by the payer through a debit or credit card.

Typically, once the payee is authorized to debit by the payee at a specified date or frequency, transactions are debited if there are sufficient funds in the linked account of the payer.

What are NACH Mandates?

NACH mandates, as mentioned above, are a recurring payment method where the mandate is linked to an underlying bank account of the payer, which in most cases is a savings or a current account.

The NACH infrastructure processed 2.46B transactions in the current financial year, according to NPCI.

NACH stands for National Automated Clearing House, a framework established by the National Payments Corporation of India (NPCI). NACH was introduced to replace the legacy ECS-based mandates, which varied across banks to simplify the payments infrastructure.

NACH is a payments infrastructure that can be implemented by any regulated bank in the country as a sponsor or destination bank and adopted by any Indian business entity looking to facilitate payments.

Your business can use the NACH platform to debit accounts for specific use-cases or credit beneficiary accounts like refunds, dividend payments, etc.

What are the Benefits of NACH Mandates?

A lot, as a payee and payer. Due to its security and flexibility, NACH facilitates recurring payments of high value or high frequency but not of high time sensitivity.

From a payee’s perspective, NACH ensures that a payer cannot cancel a mandate without requesting the payer. This is a critical risk mitigant for various industries like Lending & Insurance, where there’s a risk of default.

From a payer’s perspective, NACH requires full customer authorization through the use of account information like Netbanking login credentials or Debit card information. It also eliminates the hassles of repeated manual payments.

How is NACH Different from Other Mandates?

A lot, actually. The NACH platform is a relatively mature and standardized platform across all the major banks in the country, including public and private sector banks.

Unlike ECS mandates, ENACH is well covered by even smaller banks and provides instant confirmation of mandate registration compared to ECS, which takes a few days. And ENACH provides considerable flexibility compared to UPI in terms of transaction limits.

ENACH mandates are well regulated by RBI and have higher success rates than card mandates, which are still being developed and not offered by all the banks in the country. The industry is still working upon credit card mandates.

What are ENACH Mandates?

NPCI introduced the concept of ENACH for facilitating registration of NACH using digital means instead of the traditional way of signing on physical NACH mandate files. ENACH is an enhanced version that brings the same benefits as the conventional NACH mandate.

Electronic NACH, simply put. A popular variant of NACH mandates is the electronic form, popularly known as ENACH, which can be set up using APIs with slightly different limitations.

ENACH mandates can be created by a payer authorizing using Netbanking credentials or Debit card information on an NPCI page, thus ensuring security and making sure mandates are not registered without due authorization.

What are the Benefits of ENACH Mandates?

ENACH is not just an electronic form of NACH — it builds on the benefits offered by the traditional NACH to provide a better way of registering mandates.

ENACH registration, which sets up the mandate, requires no physical processes or manual intervention from the payer. This results in instant confirmation compared to physical NACH, which takes at least a week for confirmation and can get rejected due to signature mismatch or account information being incorrect, etc.

ENACH registration also benefits from avoiding fraud as the payer needs to key in confidential account information, thus avoiding any scenarios of the fraudulent mandate being registered or registration happening without consent.

Do all Banks Support ENACH Mandates?

No, but most major banks do. The ENACH platform of NPCI requires the sponsor bank (where the payee has an account) and the destination bank (where the payer has an account) to be live on the platform.

ENACH platform has onboard all the leading private and public sector destination banks live on Debit card or Netbanking authorization modes, with 39 banks live with a debit card, 33 on the net banking, and 28 banks live with both modes.

Essentially, what it means is if your insurer is with HDFC Bank and you have an SBI account, you can register a mandate using either your net banking credentials or debit card for your premium.

What are the Steps in an ENACH?

Two steps, basically. Like all recurring mandates, NACH has 2 steps -

1. Registration, which is setting up the mandate
2. Presentation, which is the actual debit of a mandate

NACH registration involves the payee mentioning some critical parameters like amount, frequency, and collecting the bank account information of the payer. Post this, the payer authorizes which generates a unique mandate ID if successful.

NACH presentation is the actual debit of the funds from the payer’s account on a specified date mentioned at the time of mandate registration. Typically, the transaction is successful if funds are available in the payer’s account.

Are There Limits on NACH Mandates?

Yes. NPCI places limits on the registration amount at a mandate level. There are no limits on the registration amount set for physical NACH.

ENACH registrations have a limit of 10,00,000 per mandate. NPCI increased this limit to the existing limit from the previous limit of 1,00,000, which was maintained from inception.

NACH limits are presented to protect the payer from excessive mandates and help avoid misuse of funds. If the amount presented exceeds the registered or maximum amount, the debit is rejected.

Who Can Start Using ENACH Mandates?

NPCI allows businesses to register as corporates and start using ENACH or even physical NACH through a sponsor bank, typically a scheduled commercial bank.

Businesses typically can use the services of an aggregator like Decentro to piggyback on their corporate code to collect payments, where Decentro audits the use-case of the mandates.

Businesses can also choose to register with NPCI as a corporate and use the service of a service provider like Decentro to integrate with a sponsor bank to facilitate ENACH registration and presentation flows.

Can Payers Cancel NACH Mandates?

Yes. Payers can reach out to the concerned payee or the corporate facilitating the payments to have a mandate canceled or modified based on a genuine justification.

Cancellation and modification of NACH mandates are subject to mutual agreement between the payer and payee in most scenarios like lending. The lender might not cancel the mandate until the loan is repaid.

Payees or corporates typically cancel mandates once the product or service for which the mandate has been registered is completed or fully delivered, like repayment of a loan or when an insurance policy matures.

How Can Decentro Help your Business with ENACH?

Decentro has integrated with a leading banking partner with NPCI to simplify the entire process of ENACH integration from registration to presentation.

Businesses can just use the plug n play APIs to Decentro to integrate with NPCI and go live within a couple of weeks. Decentro, on its own, manages the integration with NPCI and the constant maintenance and connectivity.

Businesses who are looking to set up the ENACH service on their own account can also integrate using Decentro to facilitate collections into their collections account, with Decentro acting as a technology partner.

For Your Customers

With Decentro, enable your customers with the following.

• Instant confirmation on registration.
• Uninterrupted payment cycle.
• Secured and assured PAN India acceptance.

How will Decentro’s APIs to facilitate recurring payments help your product? Let’s see!

For Your Product

• Facilitates mandate processing with multiple sponsor banks.
• Provides configurable mandate form to platforms.
• Enable recurring payments up to ₹1 Crore

For Your Engineering Team

How about the engineering team who’s hard at work? Would you like to provide them with ENACH APIs that make things easier and enable them to build fast and ship faster? Our APIS have:

• 99.9% Uptime
• Require only a single endpoint or multiple sponsors bank
• Enables swift mandate processing to and fro.

For Your Ops Team

Not just the tech part of things, create an ecosystem for your ops team to function better!

• Real-time tracking and status updates.
• A single view of mandate generated, status, and frequency for debit.
• 8x reduced manual effort.

If you’d like to enable the same for your business, we’re just a chat away at hello@decentro.tech.

Originally published at https://decentro.tech on January 6, 2022.