Fintech software developer Setu has launched several ready-to-use application programme interfaces (API) that can be used by merchants and online platforms on the Bharat Bill Payment System (BBPS). Recently, the Reserve Bank of India (RBI) changed its regulations on recurring payments or auto-debit transactions. As banks and card networks figure out the transition to a new “consent and mandate” model for recurring payments by October, Setu has enabled merchants to get a lead in the race to comply with the new rules.
In an online workshop organised by Setu on Thursday, Nikhil Kumar, co-founder and chief evangelist at Setu, or BrokenTusk Technologies Pvt. Ltd, said that India’s digital payments adoption story has taken place in three phases: Payments 1.0: offline payments at merchants through cards; Payments 2.0: adoption of payments gateways by merchants and; Payments 3.0: the adoption of the Unified Payments Interface (UPI) system and BBPS
Setu is the brainchild of Kumar and Sahil Kini, who were previously with the Indian Software Products Industry Round Table (iSPIRT) based in Bengaluru. The team behind Setu has worked on the Aadhaar project, UPI and the Goods and Services Tax Network platform.
“Currently we are at Payments 2.o in terms of mandates. As an end-user, if you have five mandates, you have to set them up separately and you do not have a common platform to manage these mandates. So I expect that customers will set up mandates with a payment service provider rather than with the merchant directly,” Kumar said. “Just like merchant payments moved to UPI apps, recurring payments will move to payment apps,” he added.
MediaNama earlier reported on how the new RBI rules on card data storage and recurring payments will end up benefiting fintechs and payment companies in the UPI and BBPS ecosystem.
Cost of new rules on recurring payments
In August 2019, the RBI issued a circular stating that card issuers and banks would need to implement a new e-mandates framework for recurring transactions. Any transaction above Rs 2,000 (now changed to Rs 5,000) would need an additional factor of authorisation or 2FA before being debited. An electronic mandate (e-mandate) or standing instruction is an order by a customer to their bank to allow a specific merchant, business or biller to debit their account automatically at a specific date
The new rules were meant to be come into effect in April 2021, but were extended by the RBI on the last date of the financial year. Under the new rules:
- Banks need to send pre-transaction and post-transaction notifications to customers before the auto-debit takes place.
- The customer can cancel the mandate at any time
- This new framework requires a fair amount of re-engineering on the part of banks
- Card issuers need to get the consent of existing customers to set up new e-mandates
- All new mandates will need re-consent of the customer.
Kumar explained that under the new rules, users are expected to respond to the notification for transactions above Rs 5,000. Card issuers will need to sent a notification to users 24 hours before their account would be debited to pay merchants or businesses .”Whenever the standing instruction is due to be executed, the merchant needs to be connected through the card acquirer to the consumer. The industry was not ready for this, which is why the RBI has postponed the applicability of these rules,”
Existing merchants and online businesses that earn the bulk of their revenues by auto-debiting their customer’s bank accounts every month also face a transition cost. If their services get interrupted, they may lose customers and lose income. Low-value transactions up to Rs 2,000 will probably move to UPI Autopay, which is in compliance with the RBI’s rules on consent management, Kumar said.
“On BBPS, some of the OTT streaming platforms do not want their customers to go to a third-party player. Many domestic platforms want to transition to BBPS as they want to reach 200-300 million consumers in India, whereas others may just be catering to the top 50-100 million Indians”—Nikhil Kumar, co-founder and chief evangelist, Setu
Benefits of moving to BBPS
Bharat Bill Payments is another flagship digital payments platform created by the National Payments Corporation of India (NPCI). It essentially connect ‘billers’ with consumers through a network of third-party apps, payment companies and banks. A utility player can join BBPS as a biller through their bank, which in turn will enable the utility company to accept digital payments through UPI, debit or credit card and other instruments. The utility player can use the BBPS infrastructure to embed the same digital payments options within their own app.
BBPS is an interoperable system which means any consumer can use an array of 50 digital apps/websites, their bank apps, or third-party payment apps to pay any bill. At present, there are 341 live billers from Utility companies to Housing Society, Insurance, FASTag, Loan Repayment, telecom and media entities, and over 18,000 educational institutions on BBPS.
“Usually merchants spend Rs 75 to collect every Rs 5,000 through payment gateways, whereas through BBPS and digital payments the cost comes down to Rs 12,” Kumar said. Setu has built APIs for merchants and subscription based platform to quickly transition to a new auto-debit model. The API platform has combined the strengths of BBPS and WhatsApp for Business, which will allow a biller to communicate to their customers through the messaging platform and seek their consent or 2FA.
“Currently, we support UPI and BBPS and WhatsApp and we have APIs and dashboards that allow merchants to automate payments. Every time a customer fetches a bill, we track it at a bill payments level and send the merchant a separate notification to mark the bill once its paid,” Kumar said. He added that in this transition over-the-top services, school fees and subscription players will benefit from these rules, while lending services may not.
“NPCI is working on enabling business-2-business payments on BBPS, to allow any business/biller on BBPS to pay other merchants and businesses,” he said. Setu has a strategic partnership with PhonePe, so merchants looking to use its APIs can join PhonePe’s ecosystem seamelessly.
NPCI implementing similar principles on NACH and UPI AutoPay
At the outset, the biggest cost to banks and card companies is setting up a new auto-debit infrastructure and resetting the clock on all their existing auto-debit or e-mandates. At present, e-mandates can be set up on the National Automated Clearing House (NACH), debit or credit cards or UPI Autopay. NACH and debit or credit card based e-mandates are the most common, whereas UPI Autopay has not taken off with much fanfare.
The NACH system is mainly used by banks and financial companies and is operated by the NPCI, whereas e-mandates created against cards have a separate underlying infrastructure between payment gateways, card networks and issuer/acquiring banks.
Kumar reckons that the NPCI will implement similar design features to the NACH service and e-NACH mandate. “The question is whether mandates as revocable. In reality, all mandates are revocable but the friction to cancel mandates today is very high as you need to go a branch and file forms,” he said.
“At a platform level, NPCI may come out with more rules on and could implement some of these principles in terms of 2FA for UPI Autopay. They may support two types of mandates, revocable and irrevocable, on on e-NACH,”—Nikhil Kumar, co-founder and chief evangelist, Setu
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