RBI auto debit rules: How to manage your B2B payments?

Apr 05, 2024

The digital payments ecosystem in India is currently undergoing an overhaul, especially in the card payments category. With the introduction of new RBI auto debit rules, SaaS companies are finding themselves between a rock and a hard place.

With new restrictions on the recurring payments models for SaaS subscription management, will the Indian companies and their clients adjust to this new normal or end up pursuing a new target demographic altogether?

How are applications charged in SaaS?

Software as a service is a business model wherein an application is offered to customers. Unlike bulky software that bloats up your device's storage space, SaaS applications are hosted on a server.

SaaS pricing models are usually on a recurring basis, providing customers the option to choose their billing cycle on a monthly, quarterly, or annual basis. The SaaS business model is largely reliant on continuous subscription renewal.

In order for SaaS-based companies to maintain a steady flow of revenue, they go through a credit card-enabled payment system that is recurring in nature. Unfortunately, RBI is a crackdown on the auto-debit feature.

What are the recent RBI guidelines for auto debits on online payments?

RBI auto debit rules for online recurring payments are as follows:

1. Reset auto debit payment facility

Resetting auto debit payments will be done by both customers and banks.

Customers are required to reauthorize recurring payments via OTP, also known as an additional factor authentication whenever they sign up for an auto debit payment mode with any website.

On the other hand, banking institutions are instructed to send all cardholders the notification regarding the upcoming auto debit payment 24 hours before it takes place, in order to give the customer time to cancel or pause the subscription.

Moreover, any auto debit payment of more than 5000 INR will require mandatory OTP access to approve the transaction.

2. Card tokenization

Tokenization is a security process under which customers' card details are replaced with a token that is unique code algorithmically generated, that safeguards customer data and eliminates the risk of fraud.

Under RBI auto debit rules, companies are legally obligated to ensure compliance with the new regulations and proceed to tokenize.

In addition to this RBI has also instructed all Indian companies to remove sensitive debit and credit card information from their databases from the beginning of 2022.

Why has RBI issued new guidelines?

RBI auto debit rules were introduced after careful consideration of the present SaaS subscription management ecosystem in the country. The recurring payment model in India is flawed and required stringent compliance.

The auto debit payment feature has been highly vulnerable against fraud and hacking since sensitive customer card information was stored on merchant systems.

Additionally, the auto debit payment feature experienced high transaction failures with many customers facing a situation where the money has been debited from their account but did not reach the subscription provider.

Yet another reason was share exploitation by subscription-based companies, that fail to remind their customers the auto debit payment feature is still running, even after customers have stopped using their services.

How do new RBI guidelines for auto debits affect subscription payments for businesses?

The Indian SaaS ecosystem has been a force to reckon with, even meeting 20% of global software demands and reeling in revenue worth 75 million dollars by 2025. Unfortunately, this growth has been abruptly halted by RBI auto debit rules.

These auto debit payment restrictions have added an extra layer of authentication, increasing the chances of defaulting and delayed payments, resulting in a ton of paperwork and follow-up with customers. This difficulty in collecting recurring payments may cost the Indian SaaS ecosystem a lot, and many fear it has already begun.

Due to our inefficient SaaS subscription management, multiple global SaaS startups have paused their Indian market plans and may even dial back on Investments due to RBI auto debit rules on subscription payments

The new auto debit payment rules certainly put a wrench in the automated payment landscape for SaaS-based companies. Many Indian companies are shifting their focus on international clients, to the extent of establishing their headquarters outside of India.

The new RBI auto debit rules only impact those companies that are still serving the domestic market. Even if these companies once wished to serve Indian customers, they are now compelled to test new waters.

The new auto debit payment rules inherently invalidate the ease with which recurring payments work. These new mandates create a lot of friction, becoming an inconvenience to customers and SaaS companies alike.

This move will be even more challenging for small SaaS businesses that rely on recurring service payments.

How does Volopay help to manage saas subscriptions & auto-debits seamlessly?

RBI auto debit rules will largely impact B2B transactions too, where SaaS companies stand to lose millions if clients fail to authorize recurring payments. There is an easier solution that can help SaaS companies circumvent these trying times. 

Volopay corporate cards can help SaaS companies to set recurring payments with their vendors without having to reauthorize every payment again and again.

With Volopay, you can create specific virtual cards to streamline your subscription management. Simply set it to auto pay and forget it! 

Virtual cards are exactly like physical cards, as they are a digital medium to manage all your subscriptions in one convenient place.

Not only can you create specific cards for specific vendors, but you can also designate cards for certain cardholders to improve accountability and transparency within your organization.

Get maximum visibility over all your company's subscription spending from a unified dashboard. Volopay virtual corporate cards are an ideal alternative to offset any complications arising due to RBI auto debit rules.

Virtual cards are not directly linked to your business bank account, allowing you to generate unique 16-digit Visa-powered virtual cards without worrying about fraud or illegal hacking activities. 

Unlike traditional debit or credit cards, Volopay virtual cards have a customizable expiration date through which you can set recurring payments for a specific period of time.

This eliminates the risk of exploitation by merchants and helps you have better control over your subscription management.

Suggested read - Simplify recurring payments in India

Use Volopay for hassle-free B2B payments and managing subscriptions