The Indian Recurring Payments Landscape: Tapping into the Potential of UPI AutoPay

This article was first published on Medici Global, on August 25^th, 2020.

By Asheeta Regidi and Reeju Datta

NPCI’s latest offering, UPI AutoPayNPCI introduces UPI Auto Pay facility for recurring payment, dated July 22, 2020. '>¹, is the latest step furthering recurring payments in India, after recently increasing the NACH e-mandate cap to Rs.10 LakhsE – Mandate scope & limit enhancement, NPCI/2020-21/NACH/Circular No.010, dated July 15, 2020. '>² and reviving eSign based mandatesRevival of eSign and improvement in validation process, NPCI/2020-21/NACH/Circular No. 001, dated May 26, 2020. '>³. Together, these reflect the regulator’s keen focus on high volume use cases as an enabler of a feature-rich, contemporary digital payment experience for users. The immense popularity of UPI makes AutoPay particularly promising here. Exploring AutoPay’s place in the current Indian recurring payments landscape reveals differing key features of the various solutions, like mandate creation periods, supported payment methods, credit availability, additional factor of authentication (‘AFA’), transaction limits and value caps. These differences in fact ensure the continuing relevance of all the solutions, but for differing use-cases (AutoPay- lower value instant subscriptions, NACH-higher value, credit card based SIs- credit access, etc.).

AutoPay’s advantages for instance, includes its usability for say e-commerce/OTT subscriptions, for which an existing solution like NACH was unsuitable. Nevertheless, some steps can help further tap into AutoPay’s potential (and also other recurring payment solutions) in the mainstream payments process. One, to ease the AFA value cap of Rs.2000/-, and another to enable on-demand aggregator payments via mandates. This opens a new segment of recurring payments beyond the traditional ones- like loan instalments, mutual fund payments, utility bill payments, etc.

The early recurring payment modes: ECS, NACH & Card SIs

Recurring payments have advantages Comprehensive Guide to Recurring Payments in India, Cashfree’s Blog. '>⁴, like frictionless, unmissed payments for consumers or predictable cashflow and growth for merchants. Initial mandate facilities include the RBI’s Electronic Clearing Service or ECSElectronic Clearing Services, updated on October 21, 2015. '>⁵, a paper-based mandate system introduced in 1994, now consolidated via the NPCI’s National Automated Clearing House (‘NACH’) serviceNational Automated Clearing House Product Overview, NPCI Website. '>⁶ since 2013. Fundamentally designed for business use (like corporates, banks, govt. bodies, etc.), their high mandate limits (ECS: none, NACH: Rs. 1 Crore) are a significant advantage. The mandate creation process moreover, while lengthy and cumbersome, is more secure, with additional merchant protection via treating a failed mandate on parNACH Procedural Guidelines V.3.1'>⁷ with a dishonoured cheque Dishonour of cheque for insufficiency, etc., of funds in the account. '>⁸ legally.

The delayed mandate creation (ECS: 30 days, NACH: 10 daysBanks switching from ECS to NACH, here is what you need to know, Financial Express, dated June 29, 2016. '>⁹) however restricts the system’s primary utility to where this time lag is manageable, like the lending industry. eNACH with its e-mandatesE-mandates on NACH, NPCI/2016-17/NACH/Circular No. 194, dated November 10, 2016. '>¹⁰ brought some relief in 2016, reducing mandate creation to 1-2 days. This allowed API based e-authentication via debit cards (‘DCs’)/net banking (‘NB’), making eNACH popular for SIPs, bills, rent, loan/insurance payments, etc., within the (recently enhanced) Rs.10 Lakh capE – Mandate scope & limit enhancement, NPCI/2020-21/NACH/Circular No.010, dated July 15, 2020. '>¹¹. eSign based e-mandatesRevival of eSign and improvement in validation process, NPCI/2020-21/NACH/Circular No. 001, dated May 26, 2020. '>¹², revived now post their 2018 suspensionSuspension of e-Sign based e- mandate, NPCI/2018-19/NACH/Circular No.035, dated November 23, 2018. '>¹³, have other advantages- greater reach, particularly to remote areas where Aadhaar has deeper penetration (Aadhaar holders are 1.2 billionAadhaar in numbers, Website of the Unique Identification Authority of India '>¹⁴), and an easier consent flowNPCI brings back Aadhaar-based electronic NACH, Money Control, dated May 26, 2020. '>¹⁵. These however remain capped at Rs. 1 Lakh, and are priced 5-6 times more than NACH mandates.

Neither system however met the demand for instant subscriptions for e-commerce, OTT services, as-a-service services, etc.. These require instant payment (and mandate) confirmation, often to facilitate instant delivery/consumption of the goods/services purchased. An initial solution came via card based Standing Instructions ‘SIs’Standing Instruction on cards, Medium website, dated October 13, 2018. '>¹⁶, enabled on Visa/Mastercard rails by card networks and banks. Being instant and also accessible from a consumer’s perspective, who can create them directly, these are popular here. Banks also permit ‘intra-bank’ SIsStanding Instruction on Debit Cards under Bill Pay service, HDFC Bank Website. '>¹⁷ for account-holders, which could not scale beyond major banks and large billers, due to cumbersome registration processes like separate registration (open an account) for each merchant with each bank. Interestingly, the intra-bank biller registration model seems to have now evolved into the BBPS architecture, which creates a nodal entity for bank agnostic biller onboarding (instead of each bank) and offers these billers access to customer touchpoints (instead of internet banking accounts).

Bringing new modes of recurring payments: Card mandates and others

Card based SIs are limited by their availability primarily on credit cards (‘CCs’), given the lower number of CCs in circulation (CCs: 57 million, DCs: 829 million as of April 2020Bankwise ATM/POS/CARD Statistics ATM & Card Statistics for April 2020,RBI. '>¹⁸). A wider range of subscription modes can drive digital payments growth, leading to the RBI framework enabling e-mandatesProcessing of e-mandate on cards for recurring transactions, RBI/2019-20/47, dated  August 21, 2019. '>¹⁹ on other digital payments systems last year, initially for cards and prepaid payment instruments (m-wallets) (the ‘RBI Mandate Notification’, the ‘framework’). On cards, the pre-existing SI facility meant the implementation of card based ‘mandates’ additionally is low. The primary benefit instead is an official AFA relaxation upto Rs.2000/-, given the legally ambiguousSecurity Issues and Risk mitigation measures related to Card Not Present (CNP) transactions, BI/2011-12/145,dated on August 04, 2011, mandating AFA for all CNP transactions including standing instructions. '>²⁰ relaxation in practiceHow recurring payments are finally working in India, Medianama, dated October 10,2016. '>²¹ of the AFA for SIs.

Turning to other existing payment systemsCertificates of Authorisation issued by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007 for Setting up and Operating Payment System in India, dated August 25, 2020. '>²², recurring payments are primarily utilised for C2B payments, whereas other systems like RTGS, NEFT, IMPS, etc. work primarily for B2B and P2P payments. Extending the framework to these would thus be of limited benefit. The bigger promise is for future payment systems, say by a future Umbrella EntityRBI releases framework for authorisation of pan-India Umbrella Entity for Retail Payments, Press Release: 2020-2021/206, dated August 18, 2020. '>²³, which will have a ready framework to enable recurring payments on them.

Recurring payments via AutoPay: The advantages

Currently, the biggest promise is thus for UPI, reportedly the most preferred payment systemWorldline India Digital payments Report, Annual Report 2019. '>²⁴ in India now in terms of volume, showing a near doubling of transaction volumesUPI Product Statistics, NPCI Website. '>²⁵ from 672 million in early 2019 to 1497 million this July. The framework was extended to UPI this JanuaryProcessing of e-mandate in Unified Payments Interface (UPI) for recurring transactions, RBI/2019-20/139, dated January 10, 2020. '>²⁶, and was finally operationalised with AutoPay’s recent launch. UPI 2.0’s launch in August 2018Roll out of features of Unified Payments Interface (UPI) 2.0, NPCI/UPI/OC.N0.56/2018-19, dated August 14, 2018. '>²⁷ without this feature greatly disappointedNPCI’s UPI 2.0 launched with new features; no recurring payments, Medianama, dated August 16, 2018. '>²⁸ the industry, despite its one-time mandate facility- a feature similar to pre-authorisation on cards, used often for one-time advance purchases like hotel room/flight bookings, rent payments, gifting (corporate), security deposits, etc.

AutoPayNPCI introduces UPI Auto Pay facility for recurring payments, dated July 22, 2020. '>²⁹ now combines the two facilities- allowing mandates one-time (which the RBI Mandate Notification itself does not allow) and for periodic frequencies (daily, weekly, fortnightly, monthly, bi-monthly, quarterly, half yearly and yearly). In line with the RBI Mandate Notification, the mandates are instant, needing the UPI Pin for mandate creation/modification/revocation, for the first payment, and for subsequent payments above Rs.2000/-. Mandate creation can be via UPI ID, QR scan or even UPI Links.

AutoPay’s key advantage is its consumer focus (unlike say NACH), being a popular, instant and easily accessible mandate choice. It allows merchants to expand from current instant subscription options of CC SIs, allowing widespread mandate creation from easily accessible UPI apps. Common uses will be OTT subscriptions, mutual funds, EMI collections, insurance payments, CC bill payments, and so on. Other features also reflect this facility’s consumer-friendly nature, such as that they can manage (create/approve/modify/pause/revoke) and view all current and past mandates directly from their UPI app. This feature is in fact unique to AutoPay, unlike both SIs and NACH, that don’t facilitate direct modification/revocation by customers (requiring them to approach their banks), or viewing of all existing/past mandates from one place.

AutoPay vs. Other recurring payment solutions

Even with higher value mandates needing the UPI Pin, merchants and consumers will have to weigh the benefits of the easy and instant mandate creation via AutoPay versus no AFA on NACH/eNACH. The comparison is of course limited to UPI’s overall value limit of Rs. 1-2 LakhsImplementation of Rs 2. Lakh limit per transaction for specific categories in UPI, NPCI/UPI/OC-82/2019-20, dated March 3, 2020. '>³⁰ (depending on the payment category), with NACH/eNACH being better suited for even higher value payments. Interestingly, generally businesses see a much larger number of transactions (recurring or otherwise) of a value below Rs.1 Lakh, unlike the Rs.1-10 lakh range.

Next, NACH and other mandates place the transaction risk on the merchant, which assumes significance in cases of loan disbursal or upfront delivery of product/services. NACH’s additional merchant protection creates a legal, actionable obligation to pay, making these preferable for higher value mandates, compared to say SIs (where action under internal policies rarely goes beyond cancellation of mandatesPolicy for dealing with incidents of frequent dishonour of cheques and failed NACH (NATIONAL AUTOMATED CLEARING HOUSE)/ECS (ELECTRONIC CLEARING SERVICE), Annexure I. '>³¹ and imposing SI failed feesHSBC Cashback Credit Card Services Guide, HSBC document. '>³²). Even the RBI Mandate Notification includes dispute resolution and customer grievance redressal mechanisms for disputed debits, chargebacks, etc., but is silent on failed mandates.

Taking CC SIs, these benefit from enabling credit access, though linking of overdraft accounts with UPI 2.0 may perhaps allow credit based recurring payments there too.

The chart below compares key features of mandate choices today, allowing users to pick the best suited system:

Furthering the potential of AutoPay: On-demand mandates

The RBI’s new framework is welcome for its broad scope, but certain steps can take it further. A use case collectively demonstrating the steps is payments on various aggregators, e-commerce platforms, etc. operating today (the ‘aggregator use case’). Taxis on Uber, groceries from BigBasket, food orders from Swiggy, healthcare services from Practo- arguably all involve recurring payments (and not ‘once-only’ payments), albeit of differing values and frequency. The payments here for instance, go not to the individual seller/ service provider directly (which would be ‘once-only’ discretionary payments), but often to the aggregator first, creating a new category of ‘recurring discretionary payments’.

The increasing number and popularity of aggregators indicates the huge potential of mandate based payments here. Under the RBI Mandate Notification, while variable values are expressly permitted, variable frequencies and individual transaction values meet with several hindrances.

First, the legality of payments of an ‘on-demand’ frequency within this framework is ambiguous, even though enabling them technically is not a challenge.  Though the RBI Mandate Notification itself does not expressly prohibit non-periodic payments (only ‘once-only’ payments are expressly prohibited), the RBI 2019-2021 Vision DocumentVision Document, Payment and Settlement Systems in India: Vision – 2019-2021,dated May 15, 2019. '>³³, which led to the framework’s introduction, spoke of automating ‘periodically recurring, non-discretionary payments’. The framework’s requirement for 24-hour pre-transaction notifications also supports its non-usability for discretionary payments. In the aggregator use case for instance, compliance would necessitate a cumbersome process of sharing only the notification on completion of the purchase, the actual payment being effected only after 24 hours. Lastly, the NPCI Press Release for AutoPayNPCI introduces UPI Auto Pay facility for recurring payment, dated July 22, 2020. '>³⁴ itself specifies only one-time and other periodic payments.

Second, the AFA relaxation cap introduces friction into the payment experience, restricting the utility of this framework. The scheme anyway affects other possible uses of a typically higher value, like loan repayments, insurance premium payments, SaaS fee payments, salary disbursements, etc. The issue equally affects the scheme’s primary target- lower value and consumer based transactions. The groceries app Grofers for example reported an average order value of Rs.2160/-Place order; proceed to checkout, Forbes India, dated May 13, 2020. '>³⁵ in April this year. Even outside of the aggregator use case, the average SIP size AMFI MF SIP data shows 9.24 lakh SIP accounts/month added in FY19-20: What investors should know, Financial Express, dated November 8, 2019. '>³⁶ last year for example was Rs.2900/-.

The demand to relax the AFA cap for other transactions (card based contactless paymentsVisa, Mastercard urge RBI to relax limits on ‘tap and go’ payments, The Economic Times, dated May 27, 2020. '>³⁷, CNP transactions Card Not Present transactions – Relaxation in Additional Factor of Authentication for payments upto ₹ 2000/- for card network provided authentication solutions, RBI/2016-17/172, dated December 6, 2016. '>³⁸, etc. , capped at Rs.2000/-), to Rs. 5000/- to begin with, thus applies equally here. Next, permitting payments of the on-demand frequency, and relaxing the 24 hour pre-transaction notification (allowing a customer the discretion to opt-out of the notification requirement, for instance) will help. Further, since the fundamental aim is to mitigate risk, alternative, less intrusive safeguards can be introduced. For on-demand mandates for instance, issuer-introduced velocity checks and other features can be supported by whitelisting aggregators and other merchants who can provide the facility.  Further, customers can also be allowed the flexibility to set limits on the number of debits a given merchant can make (currently they can set transaction caps for variable value mandates).

Scope for an aggregated, multi-modal mandate and recurring payment solution

Payment gateways are seeing a distribution of online payments of CCs: 30%, DCs/NB: 40%, and UPI: 20%, indicating that despite UPI’s higher use overall, there is still scope for growth in online C2B payments. The popularity of the first can be attributed to credit access, DC/NB to familiarity and distribution, and UPI to growing ease of use. Some steps can greatly increase the potential of AutoPay, like enabling on-demand mandates, relaxing the AFA cap further or protecting merchants from failed mandates. For eNACH bringing in instant mandates is an important step to increase its efficiency. Overall, there is clearly scope for all existing solutions- NACH, SIs and AutoPay, and in particular for an integrated mandate solution, allowing merchants and consumers alike to choose the mode most relevant to them.

1. NPCI Press Release: NPCI introduces UPI Auto Pay facility for recurring payment, dated July 22, 2020.
2. NPCI Notification: E – Mandate scope & limit enhancement, NPCI/2020-21/NACH/Circular No.010, dated July 15, 2020.
3. NPCI Notification: Revival of eSign and improvement in validation process, NPCI/2020-21/NACH/Circular No. 001, dated May 26, 2020.
4. Blogpost by Yash Vardhan: A Comprehensive Guide to Recurring Payments in India, Cashfree’s Blog.
5. RBI FAQs: Electronic Clearing Services, updated on October 21, 2015.
6. National Automated Clearing House Product Overview, NPCI Website.
7. NACH Procedural Guidelines V.3.1
8. Section 138, Negotiable Instruments Act, 1881: Dishonour of cheque for insufficiency, etc., of funds in the account.
9. Media Report by Adhi Shetty: Banks switching from ECS to NACH, here is what you need to know, Financial Express, dated June 29, 2016.
10. NPCI Notification: E-mandates on NACH, NPCI/2016-17/NACH/Circular No. 194, dated November 10, 2016.
11. NPCI Notification: E – Mandate scope & limit enhancement, NPCI/2020-21/NACH/Circular No.010, dated July 15, 2020.
12. NPCI Notification: Revival of eSign and improvement in validation process, NPCI/2020-21/NACH/Circular No. 001, dated May 26, 2020.
13. NPCI Notification: Suspension of e-Sign based e- mandate, NPCI/2018-19/NACH/Circular No.035, dated November 23, 2018.
14. Aadhaar in numbers, Website of the Unique Identification Authority of India
15. Media report by Pratik Bhakta: NPCI brings back Aadhaar-based electronic NACH, Money Control, dated May 26, 2020.
16.   Blog by Aditya Kulkarni: Standing Instruction on cards, Medium website, dated October 13, 2018.
17. Standing Instruction on Debit Cards under Bill Pay service, HDFC Bank Website.
18. RBI Data Releases: Bankwise ATM/POS/CARD Statistics ATM & Card Statistics for April 2020,RBI.
19. RBI Notification: Processing of e-mandate on cards for recurring transactions, RBI/2019-20/47, dated  August 21, 2019.
20. RBI Notification: Security Issues and Risk mitigation measures related to Card Not Present (CNP) transactions, BI/2011-12/145,dated on August 04, 2011, mandating AFA for all CNP transactions including standing instructions.
21. Article by Sashidhar K.J.: How recurring payments are finally working in India, Medianama, dated October 10,2016.
22. RBI Publications: Certificates of Authorisation issued by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007 for Setting up and Operating Payment System in India, dated August 25, 2020.
23. RBI Press Release: RBI releases framework for authorisation of pan-India Umbrella Entity for Retail Payments, Press Release: 2020-2021/206, dated August 18, 2020.
24. Worldline India Digital payments Report, Annual Report 2019.
25. UPI Product Statistics, NPCI Website.
26. RBI Notification: Processing of e-mandate in Unified Payments Interface (UPI) for recurring transactions, RBI/2019-20/139, dated January 10, 2020.
27. NPCI Notification: Roll out of features of Unified Payments Interface (UPI) 2.0, NPCI/UPI/OC.N0.56/2018-19, dated August 14, 2018.
28. Media Report by Rana: NPCI’s UPI 2.0 launched with new features; no recurring payments, Medianama, dated August 16, 2018.
29. NPCI Press Release: NPCI introduces UPI Auto Pay facility for recurring payments, dated July 22, 2020.
30. NPCI Notification: Implementation of Rs 2. Lakh limit per transaction for specific categories in UPI, NPCI/UPI/OC-82/2019-20, dated March 3, 2020.
31. SBI Policy for dealing with incidents of frequent dishonour of cheques and failed NACH (NATIONAL AUTOMATED CLEARING HOUSE)/ECS (ELECTRONIC CLEARING SERVICE), Annexure I.
32. HSBC Cashback Credit Card Services Guide, HSBC document.
33. RBI Publications: Vision Document, Payment and Settlement Systems in India: Vision – 2019-2021,dated May 15, 2019.
34. NPCI Press Release: NPCI introduces UPI Auto Pay facility for recurring payment, dated July 22, 2020.
35. Article by Monica Bathija: Place order; proceed to checkout, Forbes India, dated May 13, 2020.
36. Article by Sunil Dhawan: AMFI MF SIP data shows 9.24 lakh SIP accounts/month added in FY19-20: What investors should know, Financial Express, dated November 8, 2019.
37. Media Report by Aswin Manikandan:, Visa, Mastercard urge RBI to relax limits on ‘tap and go’ payments, The Economic Times, dated May 27, 2020.
38. RBI Notification: Card Not Present transactions – Relaxation in Additional Factor of Authentication for payments upto ₹ 2000/- for card network provided authentication solutions, RBI/2016-17/172, dated December 6, 2016.