The Reserve Bank of India (RBI) has provided its much-awaited nod for electronic mandates (both through net banking and credit/debit cards), instead of the prevailing Adhar based authentication. This is a welcome approval for fintech companies as they will be able to auto-debit recurring payments related to mutual funds, home loans and so on, as per e-mandates provided by the users.
On 15th April, the National Payments Corporation of India (NPCI) has received the final nod from RBI regarding the same. The member banks of RBI are advised to make adequate provisions to implement these new forms of e-mandates by 30th June 2019. NPCL has been requesting RBI to allow these two forms, particularly after the Aadhar-based mandate systems were set null and void by a Supreme Court order. Post the restriction to access the citizen’s database (as was done earlier in the Adhar-based mandate systems) banks were also looking for alternate and more efficient modes to authenticate their customers.
This recent move by RBI will surely help fintech companies (and banks too) in getting the authentication of recurring payments from their customers. From now onwards, they will need to carry out a test transaction via debit card/ net banking to authenticate a user. NPCI can use debit card based e-NACH (National Automated Clearing House) to process such e-mandate transactions. As per the latest data published by NPCI, as many as eight banks have made provisions (as ‘destination banks’) for e-mandates based on net banking. Four others are waiting ‘go-ahead’ after completing the necessary certification procedures and the remaining eleven banks are currently going through the certification procedures.
Among the large lenders in the private sector, Kotak Mahindra Bank, IndusInd Bank, Axis Bank and Yes Bank have already gone live. From the community of the Public Sector lenders-Bank of Baroda, Punjab National Bank and Central Bank of India are the ones to have gone live. The Kotak Mahindra Bank is the only lender so far to have gone live for both types of e-mandates (card and net banking-based).
With these developments going around, all banks/financial institutions will soon be able to go for full-fledged implementation of API-based e-mandates. Customers with NPCI-approved debit cards can also mandate fintech firms/ banks to facilitate recurring payments for services such as loan EMI payments, insurance premium payments and investments related to mutual funds on their behalf. However, a maximum limit of Rs 1 Lakh is prescribed for each mandate at this moment, with a provision to review the same on a later date. These e-mandates, without doubt, will make lives much easier for both the banks and the customers as these are fast, paperless and consumer-friendly.
As per industry expectations, online banking is due to reach about 150 million users by the year 2020, thanks to ever-so-increasing internet penetration. People are steadily embracing digital payment modes (such as internet banking, online wallets and UPI transfers) for their day-to-day operations. At this juncture, the above-mentioned RBI approval will provide a significant boost to the Indian fintech industry; not to mention the ease of operations for the banks and the customers alike. This is also a giant step towards fulfilling the national goal of ‘Digital India’.
(This post is written by Ashu Rana and she is an MBA qualified visionary professional with over 12 years of experience is working as an operations head with Afinoz Digitalizing Finance (https://www.afinoz.com/) . She has verifiable year-after-year success in achieving revenue, profit and business growth objectives within turnaround and rapid-change environments. She is an effective leader, and a business strategist with skills to work in multi-cultural, multi-lingual environment. With strong interpersonal skills, she has expertise to interact at all levels of hierarchy.)