How do RBI guidelines affect subscription payments?

Apr 05, 2024

Customers and business users prefer SaaS subscriptions because it allows them to pay automatically through their credit or debit card.

This automatic deduction method has been convenient for both merchants and customers, as the card details were saved on merchants’ sites for further transactions. Everything was fine until the new RBI guidelines were announced in 2022.

According to their statement, debit and credit card users can no longer save their card details on merchants’ online platforms.

This new rule affects SaaS subscription payments the most and creates friction in the way SaaS companies operate.

With over millions of online users and merchants, these new RBI guidelines have surely caused disruption in the way people used to pay.

How are applications charged in SaaS?

Predominantly, Software-as-a-Service applications let their users enjoy their packages and charge them on a recurring payment basis. That is, during the initial payment period, the SaaS payments platform will ask the user to store the credit card details for further auto debit payment without authorization.

This stores your card information like card number, CVV, and expiration date.

One of the best SaaS subscriptions is Netflix. We don’t pay it every month if we pay using a card and store that for automatic renewal every month.

Auto-renewal SaaS payments are stress-free for business users and banks as the payment gets auto-deducted and the user receives the invoice for it. 

What are the recently issued RBI guidelines for online payments?

Here are the points discussed in the RBI guidelines. These guidelines are declared to safeguard the sensitive banking information of the customers and avoid usage by wrong users. 

1. Processing Auto debit payment guideline

In this new payment system, auto-renewals for SaaS payments are detained and users are asked to authorize them by doing a two-factor authentication (for payments lower than INR 5000).

Users are in more control here as they can choose if the money should go out or not. Users will be sent a notification through a registered email with a link to approve or reject the recurring payment.

For SaaS subscriptions higher than INR.5000, users must enter an OTP to proceed with auto debit payment. 

2. Card tokenization

Tokenization is a technical process that happens on a merchant’s website while processing a one-time payment. This process is to mask the card details when it’s on the open network and still be able to use it for current payment.

Think of an Amazon purchase here. When a user makes the payment, the merchant will get consent to tokenize the card. Once it’s given, the merchant thereby requests the concerned banking operator to provide a token code.

This token code gets saved on the merchant’s website for further transactions. For each merchant, the token code process should be repeated.

So if you are buying something again on Amazon, you use the stored token code and only enter your CVV and OTP to fulfill the transaction.

3. Date of compliance

Originally, these RBI guidelines were publicized in early 2019. Later, the RBI strictly enforced it once again in March 2021.

Every bank has been sent out a notice to comply with the guidelines and alter SaaS subscriptions method for recurring payments.

The users whose banks weren’t compliant with the RBI guidelines had issues with auto debit payment from their cards. The snowball effect of this policy was felt by merchants and users collectively starting on April 2021.

Why has RBI issued new guidelines?

In recent times, payment fraud and banking data theft complaints have been reported by many online customers.

People save their credit or debit card details on every online merchant site without checking their technological credibility. When the merchant’s website is attacked, it can reveal the private banking information of users and lead to thievery.

SaaS subscriptions for recurring payments are dangerous too in their own ways. Businesses get an opportunity to make more money through auto debit payments. But if the user is negligent, their money can keep getting cut off even if they don’t use the product. 

RBI has made this move to make SaaS payments or any online payment for that matter safer for every online user and not let their data get compromised over convenience. 

How do new RBI guidelines affect subscription payments for businesses?

With new RBI guidelines, users have a lot to be blessed with. What about businesses and banks? How are they affected by this change in SaaS subscription management?

How does it affect businesses?

Businesses use SaaS subscriptions for a reason and that’s not only for helping their customers to pay easily.

Auto renewal SaaS payments have played a key role in customer retention so far. Now that it’s gone, they have to rely on banks to send notifications to their customers to get them to pay the consecutive dues.

If the customer doesn’t check their emails, it’s the merchant’s turn to remind them through calls, texts, or emails to subscribe and continue enjoying the service.

Unlike automated recurring payments, this method leads to late payments or service discontinuation from the customer end. Though these changes only apply to their Indian customers, it still affects their revenue as customer count has been dipping. 

Roughly, about 20% of customers only have taken steps to pay SaaS payments promptly and the rest are paying manually or looking for other efficient ways.

With this, their further customer onboarding who will pay through cards is also pending. Businesses are trying to bounce back stronger by using different flexible banking options like UPI or eMandate for auto debit payments and SaaS subscription management.

How does it affect banks?

Foremost, banks suffer because of compliance issues and their effects on their customers’ SaaS payments.

Banks have been repeatedly notified by the RBI to adhere to guidelines of auto debit rules to regulate SaaS subscriptions. Their customer service hotlines are busier than ever answering anxious customers and business users.

Some banks are successful in getting the regulations implemented and putting a hold on recurring payments.

They are also working hard to harmonize the new SaaS subscription management and balance both their customers as well as the banking regulators.

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

Just like merchants, business cardholders are worried about their SaaS subscriptions constantly getting canceled due to the nullification of auto debit payment. Teams that use more tools and software are worried about their SaaS subscription management and looking for ways to streamline the payment system.

Are you one of them who wants to pay SaaS payments automatically? 

Volopay is the perfect solution for customers like you who appreciate continuing with their old routine without being disturbed every month. 

How can Volopay help you regulate your SaaS subscriptions without the intervention of RBI guidelines?

1. Virtual cards for subscription

To manage your subscription effortlessly and automatically, Volopay has virtual cards.

These function almost like a physical card but they can be distributed in unlimited numbers, each with different card details. So, for all SaaS subscriptions, you can have a different card and use that for recurring payments.

They are safe to use as these cards draw funds from your Volopay wallet, yet stay unrelated to that or other virtual cards assigned. So, if any privacy compromise happens, you can block the card and move forward.

You can assign limits to each card to avoid overpayments. Each card will be associated with a budget (concerned team or campaign) and the spending here will be reflected under that. Your SaaS subscription management is simplified as funds get automatically drawn every month and you can monitor them in real-time.

2. USD cards

SaaS payments are made in US dollars too. For that, Volopay has USD cards which are majorly for international transactions.

With nominal FX fees, you can load money into your US wallet and process the SaaS subscriptions’ transactions in dollars and not in rupees. These are also virtual cards that are for recurring payments. 

3. Recurring payments

Recurring payments are one of the major drawbacks of traditional business cards from banks. Payments are getting declined and users pay it manually in the end. Put an end to this and make your SaaS subscription management work in auto-pilot mode.

You don’t have to authorize or do double-factor authentication every month to renew your SaaS subscriptions.

Accomplish organized payment management and ensure business continuity both together with Volopay.

Related read - RBI's new guidelines on data protection and card transactions

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