Money & Banking

RBI rule on recurring payments: Small businesses, start-ups feeling the heat

Debangana Ghosh Mumbai | Updated on October 20, 2021

They have been losing out on users and timely payments

Small businesses and start-ups running on a subscription model are losing out on users and timely payments due to the Reserve Bank of India’s new rule on recurring payments.

For instance, the non-profit digital rights advocacy group, Internet Freedom Foundation (IFF), which runs on a monthly donorship model, lost nearly 70 per cent of its existing membership base of close to 423.

Apar Gupta, Advocate and Executive Director, IFF, told BusinessLine: “It took us three years to build our member base. Most of our donors signed up using their debit and credit cards, which has been the primary mode of recurring online payments in India. After the RBI mandate came into being post-September 30, they weren’t able to sign up or make those payments.

“Essentially the bottleneck is on the banks’ end, which have not implemented the RBI guidelines and directives till now. This is making it impossible for existing members to sign up and make their recurring monthly payments afresh as the date for payment approaches. Donation authorisations have lapsed,” he explained.

An inverse problem

The Bengaluru-based expense management SaaS start-up, Fyle, is facing an inverse problem. “We are using at least 60-plus international services and products to run our business. All of these vendors were subscribed through our Kotak Corporate credit card. But this month we weren’t able to make payments to many of them because the bank claimed that the merchants we are trying to pay are not RBI recurring payment rules-compliant. The entire world runs on recurring payments for SaaS products, how will they know about the RBI’s specific rules? Now, we have been getting notices of possible account suspensions,” said Sivaramakrishnan Narayanan, Co-founder and CTO, Fyle.

New rules

Under the new rules, banks are required to inform customers in advance about recurring payments due, and transactions would be carried following a nod from the customer. So, the transaction will not be automatic, but will be done after authentication from the customer. Sijo Kuruvilla George, Executive Director, Alliance of Digital India Foundation (ADIF), said: “RBI’s new payment rule has resulted in major disruptions for businesses – an avoidable one that has put Indian start-ups at a disadvantage. For an entrepreneur, continuity in business is absolutely critical. The manner in which the policy was implemented has wreaked havoc and has put Indian companies in a precarious position.”

Mumbai-based digital publication and research start-up,, was suddenly left to manually make payments using credit card at 50-plus internet-based services that it had been using for over a decade.

These services include various software, web servers and tools that the company has been using to run its business.

Varun Krishnan, Founder and Editor-in-Chief,, told BusinessLine: “We are a small team of 10 employees. Going through renewing each website manually every month is difficult. I might need to hire another employee just to make these monthly payments. For certain services like AWS, I haven’t had to log in in over a year as the payments would directly get deducted from my credit card. Now, suddenly I got a mail from them saying my account would get suspended if I don’t renew. I had to go to the website and pay.”

Published on October 20, 2021

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