A Comprehensive Guide to Recurring Debit Card Payments

An Overview of Recurring Debit Card Payments

A recurring payment refers to a financial transaction in which a predetermined amount of money is automatically debited from a person’s or entity’s account at scheduled intervals, whether it’s monthly, weekly, daily, or annually. This method of payment is commonly used for bills, subscriptions, memberships, loans, and other ongoing financial obligations.

Recurring debit card payments involve authorizing a service provider or a merchant, such as OTT service providers, mutual fund houses, insurance companies, and telecom companies, to deduct funds from a bank’s credit or debit card for the products or services they provide. This authorization is granted either as a one-time setup or during the sign-up process for a subscription or service.

What sets recurring payments apart is that neither the customer nor debit or credit cards need to be physically present during the actual transactions, saving individuals and businesses the effort of manually initiating each payment.

Types of Recurring Debit Card Payments

Types of recurring payments can be classified into two main categories:

1. Regular or Fixed Recurring Payments : In this category, customers are charged a consistent and predetermined amount each time a payment is due. This type of payment structure is often seen in memberships and subscriptions. For instance, gym memberships and magazine subscriptions fall under the regular or fixed recurring payment category. Customers can expect the same charge for every payment cycle.
2. Irregular or Variable Recurring Payments : Irregular or variable recurring payments involve charges that fluctuate based on the customer’s usage of a product or service. The amount charged is subject to change depending on consumption or usage patterns. Utility bills, such as electricity, gas, and water, are classic examples of irregular or variable recurring payments. The amount owed varies each billing cycle, reflecting actual usage.

These two categories encompass the spectrum of recurring payments, accommodating both scenarios where payments remain stable and instances where they can change based on usage or consumption.

Examples of Expenses Suitable for Recurring Payments

Recurring debit card payments cover a broad range of expenses. There are several types of recurring payments, each serving a specific purpose and catering to different financial needs. Utility bills, subscription services (such as streaming platforms and magazines), loan repayments, gym memberships, and insurance premiums are common examples. These payments are particularly advantageous for obligations that remain consistent over time.

• Utility Bills : Recurring payments for essential services such as electricity, water, LPG, telecom services, internet bills, and rental payments can be automated for convenience, ensuring you never miss a due date.
• Subscription Services : Monthly or periodic payments for services like OTT platforms, online magazines, software subscriptions, and memberships can be conveniently managed through recurring debit card payments.
• Loan Repayments : Regular payments towards loans, such as mortgages, car loans, student loans, installments, and lease payments, are often set up as online recurring payments, minimizing the risk of late payments.
• Insurance Premiums : Payments for insurance policies like health, vehicle, or home insurance can be automated for consistent coverage.
• Educational Fees : Through integration with online recurring payment solutions, the Edtech sector can enable educational institutions to offer students a secure and seamless digital approach for fee payments, ensuring timely transactions without any complications.
• Donations : Payments made to support charitable foundations or causes on a continuous basis.

How Do Recurring Debit Card Payments Work?

The process begins with the cardholder authorizing the merchant to debit their account on a recurring basis. The merchant securely stores the card information and initiates payments as agreed upon. On the scheduled date, the payment is automatically deducted from the cardholder’s account.

Recurring debit card payments offer a streamlined way for businesses to facilitate auto-debit transactions while allowing customers to conveniently authorize mandates.

• Step 1. Invitation : Customers receive an email or SMS invitation that provides essential information, such as the bank’s name and the chosen mode of authentication.
• Step 2. Submission of Details : After accepting the details, customers are directed to the NPCI ONMAGS website, where they submit the required information for processing.
• Step 3. Bank Authentication : Customers are then redirected to their bank’s official website, where they enter their NetBanking or debit card credentials. This versatile approach allows customers to choose the method that suits them best.
• Step 4. Bank Approval or Rejection : The bank evaluates the provided details and decides whether to approve or reject the mandate request. Upon making a decision, confirmation details are shared with both the customer and the relevant institution, such as the insurer.

This streamlined sequence of actions not only saves valuable time and reduces costs but also ensures a seamless, hassle-free process that operates in real-time. By seamlessly integrating these steps, an eMandate recurring payments solution optimizes the procedure for recurring debit card payments, enhancing efficiency and customer convenience.

Advantages of Recurring Debit Card Payments

Recurring debit card payments offer a range of benefits for both businesses and customers, streamlining financial processes and enhancing customer satisfaction & financial well-being.

• Instant Setup of Recurring Auto-Debit Transactions :Businesses can swiftly establish recurring auto-debit transactions, providing their customers with a seamless payment experience. This ease of setup enhances customer satisfaction and loyalty.
• Real-Time Registration of API eMandates :API-based recurring debit card payments shine in their real-time registration capability. The entire process, from authenticating customers to creating mandates, is integrated into automated systems. This ensures not only speed but also accuracy in mandate registration.
• Convenience :Recurring debit card payments relieve customers from the task of remembering multiple due dates and manually initiating payments. This convenient arrangement minimizes the risk of missed payments and subsequent inconveniences.
• Consistency : By ensuring timely payments, recurring debit card payments contribute positively to a customer’s credit history. The consistent nature of these payments reflects responsible financial behavior, potentially leading to improved credit scores.
• Time Savings : The automated nature of recurring payments eliminates the need for repetitive payment procedures. Customers can focus their time and energy on other important matters, enhancing overall productivity.
• Reduced Late Fees : Recurring payments significantly decrease the likelihood of late payments, sparing customers from unnecessary late fees and penalties. This financial relief adds up over time, benefiting both businesses and customers.

Recurring Debits vs. Direct Debits: A Comparison

While both involve automated payments, direct debit and recurring debit card payments diverge significantly in terms of their operational mechanisms and financial implications for businesses.

Recurring debits are suitable for fixed expenses, whereas direct debits provide more control over varying amounts.

Take a glance at a concise breakdown of their key differences from both the consumer’s and the biller’s perspectives:

• Consumer Perspective:

From the consumer’s point of view, the process of paying bills using these two methods appears quite similar. In both cases, the payment experience remains almost identical. The distinction arises in the details you provide during the payment process. For direct debiting, you input your bank account number and routing number, whereas for debit card payments, you provide your card number.

• Biller’s Perspective:

However, the perspective of the biller or the entity receiving the payment sheds light on substantial differences between the two processes. Debit-card payments function akin to credit card transactions, utilizing the same payment network. On the other hand, direct-debit payments operate through the Automated Clearing House (ACH) network, which stands apart in its functionality.

RBI Guidelines on Auto-Debits: Compliance and Avoiding Payment Failures

The Reserve Bank of India (RBI) has introduced new guidelines for “Master Direction – CreditCard and Debit Card – Issuance and Conduct Directions, 2022”for auto-debit transactions, effective October 1, 2021. These guidelines are aimed at regulating recurring payments made through credit cards, debit cards, and prepaid instruments.

Under these guidelines:

• Customer Approval : Any automatic recurring transaction made using a credit card or debit card will now require explicit advance approval from the customer. This approval will be obtained through an Additional Factor of Authentication (AFA).
• Pre-Debit Message : Card-issuing banks are mandated to send a pre-debit notification to customers 24 hours before the scheduled payment date. To ensure a successful auto-debit payment for transactions exceeding INR 15,000, cardholders will need to authenticate using a one-time password (OTP).
• Opt-Out Option : Upon receiving the pre-transaction notification, customers have the freedom to opt out of the specific transaction. Additionally, they can view, modify, or cancel any existing auto-debit mandates associated with their card.
• Communication Preference : Cardholders will also have the choice to select and change their preferred mode of communication (such as SMS or, email) for receiving the pre-transaction notification.

Secure Recurring Debit Card Payments with SignDesk’s eNach eMandates

SignDesk offers an eNACH-based recurring payment API eMandate solution, “link.it” that streamlines recurring debit card payments. Recurring payments offer a seamless and efficient way to manage ongoing financial obligations.

Whether you’re an individual seeking to simplify bill payments or a business striving for customer convenience, understanding the nuances of recurring debit card payments empowers you to make informed financial decisions and ensure compliance with regulatory standards.

Switch to a smart billing system today.