Subscription Payments on UPI: Another Tipping Point in e-Commerce space in India

Ram Rastogi

“With 10 million subscribers, India happens to be the biggest market for Amazon’s subscriptions business.”

Leading e-commerce player Amazon, through Amazon Prime, a loyalty-based subscriptions program is already hugely popular with the Indian consumers.

Ram Rastogi

India has been on a spectacular growth journey the past few decades & consumer spending is expected to rise to $3.6 trillion by 2020. India is also in the midst of an e-commerce boom. Over 40% (about 472 million users) of the country’s population is internet enabled, making India the world’s second largest user base. This massive internet penetration has put the Indian e-commerce market on an upward growth trajectory.

From $38.5 billion in 2017, the market is projected to grow to $200 billion in 2020, surpassing the US to become the second largest ecommerce market in the world. 

This huge uptake in online commerce is due to several reasons – the growing internet penetration, advances in online payments, surge in mobile phone connections and many others. And, along with this, the needs & preferences of consumers have also been evolving.

With the advent of intelligent customers, hard-selling has become a thing of the past. From Xennials to Millennials, everybody loves the flexibility, convenience and personalisation that technology has to offer. They prefer access without ownership, flexible, just-in-time consumption of products and services are preferred over heavy, long-term investment models. These factors have led customers to lean towards new consumption models like Subscriptions instead of traditional purchase models.

Subscriptions or Recurring Payments as a model is perfectly suited to provide ease of operations for both businesses and customers alike. Subscriptions or what businesses call the‘recurring revenue’ model is not something completely new to India. The traditional ‘Doodhwalas’ or Milkmen and famous ‘Dabbawalas’ in Mumbai actually functioned very much like a subscription model. Only that these are offline businesses, with no streamlined way to order and pay for products and services. With the internet, online commerce and digital payments, the subscriptions business model in India is now moving online. 

It took a while for the subscription model to gain a foothold in India. But the success of OTTs  brands like (over-the-top media services) like Netflix, Amazon Prime and Hotstar has proven that there is a massive market for subscription businesses in the country driven by engaging content and a convenient way to consume.

While media has also  started the subscriptions revolution in India, other industries quickly caught up. From heavyweights like Ola, Flipkart and Zomato to niche players like Flintobox, Fab Bag and Sugar Box all have made huge bets on subscriptions to drive business success. The promise of recurring revenue (RR) or monthly recurring revenue (MRR) provide many startups with the ability to predict, work towards future growth. As for consumers, the subscriptions model perfectly fits into the space where one is allowed to experiment and change, without the commitment of a lock-in on purchase – something critical to make new products/services and business models a success.

According to Pixights, Indians on average spend Rs 295 per month on an OTT platform. Also, about 62% of Indians have subscribed to three or more such platforms.

Subscription /Recurring Payments on UPI :

In August 2019, RBI  allowed processing of e-Mandate on subscription /recurring payments via UPI system. This facility was earlier available in India for card and wallet-based payments. All the instructions/conditions stipulated for aforementioned payments would apply, mutatis mutandis, while processing e-mandate in UPI.

A cardholder desirous of opting for e-mandate facility on card undertakes a one-time registration process, with AFA validation by the issuer. An e-mandate on card for recurring transactions is being registered only after successful AFA validation, in addition to the normal process required by the issuer. With the new facility, UPI users will be able to bypass additional factor authentication (AFA) required for each payment to a regular merchant.

Transaction limit :

According to RBI, the limit for e-Mandate based recurring transactions without AFA is Rs 2,000 per transaction. Transactions above this cap are also subject to AFA. The limit of Rs 2,000 per transaction is applicable for all categories of merchants who accept repetitive payments based on such e-mandates. No charges will be levied on such transactions from the user availing the e-mandate facility.

The move is likely to make signing up for financial services, such as systematic investment plans and insurance, easier for customers. It will also help in making UPI a means for payment for utility bills up to a certain limit. Subscription driven businesses and cab aggregators, too, can use the recurring payments facility on UPI now.

The service provider would have to provide a pre-transaction notification to the customer at least 24 hours before the scheduled transaction. Similarly, the service provider will also provide a notification to the customer immediately after the transaction. An easy opt-out facility and a grievance redressal mechanism with clearly defined timelines will also be provided to the customer by the service provider.

Subscription /recurring payments will be another tipping points in doubling the number of successful UPI transactions to 3 billion in the month by December 2020.

( Excerpts from various research reports )

Views expressed in this article are the personal opinion of Ram Rastogi, Digital Payments Strategist, Thought Leader in Financial Services, Public Policy DeeTech , RegTech and  Real Time Payments -IMPS & UPI .

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