Indian lenders have asked the Reserve Bank of India (RBI) to allow customers with UPI 2.0-enabled devices to use the recurring payments feature for such things as the monthly instalments on their loans, insurance premiums, and mutual fund investments, the Economic Times reported. UPI is a mobile platform that facilitates instant fund transfer between two bank accounts without requiring details of the beneficiary’s bank account. It also allows users to link multiple bank accounts to a single mobile banking app.
It’s worth noting that when the National Payments Corporation of India (NPCI) launched the upgraded version of the Unified Payments Interface (UPI), dubbed UPI 2.0, in August 2018, the absence of recurring payments had disappointed companies. The RBI said then that the feature was omitted because it was open to misuse. According to the ET report, after UPI 2.0 was launched, the Indian Banks’ Association, with representatives from major public sector and private sector banks, sent a detailed proposal to the regulator seeking permission for regulated financial entities to use recurring payments for loans, premiums and so on.
Why recurring billing is important
While banks and their customers await the introduction of recurring payments in UPI 2.0, the facility has been available through credit and debit cards for some time.
We had reported in October 2016 that a number of websites and services had started offering recurring payments on cards. These included Business Standard, STAR TV’s HotStar and Ola Money auto-recharge. A month later, payments gateways Paynimo and Razorpay started offering recurring payments on credit cards without the need for an OTP or password.
Why is this important? We had written that:
“This is a significantly important change for the payments ecosystem in India: typically, many global digital services (such as news subscription for the Financial Times, video services like NetFlix and BoxTV, email marketing services like MailChimp and Software-as-a-service tools such as VWO) charge user credit cards monthly. In India, this has historically not been done because of the second factor of authentication requirement, which adds an additional layer of friction to the transaction: users end up thinking again about whether they really need this service, or they deprioritize the decision to make the payment and hence drop out. With that layer of friction now potentially missing, online businesses can bill more easily.”
Why UPI is better than credit cards for recurring payments
We had mentioned in 2016, that UPI is a lot smoother for recurring payments since it allows pull-based transactions: a merchant has to initiate a transaction on their end to collect a recurring payment and the customer has to merely authenticate the transaction with an m-PIN. This has the following benefits:
- The customer has control over the transaction rather than the bank or the merchant and is informed when a transaction is performed.
- For recurring payments using cards, a customer may be billed for purchases he did not authorize and is informed only after the transaction is complete. On the UPI, the customer will have to ability to deny a pull-based transaction.
- UPI will be interoperable across all banks on the platform, including those that don’t offer recurring payments on cards.
- Recurring payments on cards are only available to credit card holders; recurring payments on UPI will be for any account holder whose bank is a part of UPI.