Money & Banking

RBI’s recurring payment rules hurt small businesses

Debangana Ghosh | Updated on: Jun 01, 2022
The regulations demanded companies using subscription-based recurring payment models via credit or debit cards to inform the customers in advance about an upcoming payment

The regulations demanded companies using subscription-based recurring payment models via credit or debit cards to inform the customers in advance about an upcoming payment | Photo Credit: SARINYAPINNGAM

Tokenisation rules that come into effect on June 30 to worsen the situation, say industry experts

Seven months after the Reserve Bank of India’s (RBI) new rule on recurring payment was implemented, small businesses and start-ups still complaint on the worsening situation as most start-ups running on a subscription model are losing out on timely payments.

The regulations which came into effect from October 1, 2021, demanded companies using subscription-based recurring payment models via credit or debit cards to inform the customers in advance about an upcoming payment and let them authenticate the same before deduction.

This did not play out well for many start-ups. The non-profit digital rights advocacy group, Internet Freedom Foundation (IFF), which ran a monthly donorship model, lost 70 per cent of its membership when these rules came into place. This was out of its 423 members then, that took the NGO almost three years to build.

Farkhanda Zahoor, Fundraising and Communications Manager, IFF, told BusinessLine, “Our model is completely publicly-funded by Indian citizens. Despite the passage of six months, the issues have not been resolved due to the unpreparedness of the banks. We had hoped that the payments systems would be stabilised by March and we can weather the storm, but unfortunately, that’s not the case. We ran a couple of fundraisers to sustain our monthly operational costs that pay for our small staff’s salaries and also support legal expenses when we litigate in courts.”

She added, “Fundraising has definitely taken a hit and our membership model has come to a halt because of the restricted methods of payment ... Over the past quarter, we have implemented alternate ways and solutions to make the processes as smooth as possible. Netbanking and UPI methods are working for recurring payments. We have also implemented the physical mandates, that is paper NACH.”

Inverse issue continues

Some start-ups themselves are subscribed to several other Software-as-a-Service (SaaS) tools to run their businesses; they are facing an issue with timely payments to their vendors, failure of which in turn, affects their access to the services needed.

“The situation has not improved; it has only gone worse. The irony is when you are trying make large payments of $100-200, it is easily getting verified but smaller payments of $5-10 are either getting blocked or stuck. This was for security purposes by RBI but it is only creating inconvenience. There’s a standing instruction portal, then again my American Express card is not working. I am subscribed to over 50 internet-based services and vendors, and with other bank credit cards also, the chances of successful transactions are thin. It’s more a trial and error,” Varun Krishnan, Founder and Editor-in-Chief, told BusinessLine.

Sivaramakrishnan Narayanan, Co-founder and CTO, Fyle, added, “This is a headache for us. Almost every other day, we are getting notices of payment and services failure. And as a business, we are dependent on at least 80 other services. Doing this manually can be quite inconvenient.”

Tokenisation up next

Come June 30, businesses will no longer be able to store card details of customers. They are now prepping for the tokenisation of credit card details, a mechanism to hide credit and debit card details, replacing with a token.

“Some start-ups have started charging annual fees, which will be a one-time fee and won’t require monthly recharges. To ensure business continuity, some businesses had even upgraded services for customer to full-year plans at no additional costs. The recurring mandate is a challenge and India is still ailing from that,” Sijo Kuruvilla George, Executive Director, Alliance of Digital India Foundation (ADIF), told BusinessLine.

He added, “Now, tokenisation is likely to bring more confusion. But so far, as compared to the previous December deadline, there has been a lot more progress. Companies like Paytm have claimed that they have already moved 80 per cent of their customers to tokenisation. A lot of companies are also educating their customers to move to alternative payment methods. Ultimately, users or consumers are not given a choice or education if they want or don’t want to opt for tokenisation. These moves are not putting India in the best light either globally.”

Published on June 01, 2022
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