E-mandates are considered one of the boons in the world of the payment collection system. Do you remember how challenging it was to collect payments through lots of manual and paper-based work in banks? All thanks to the e-mandates. Because with e-mandates lenders and firms can collect recurring payments and operational expenses without any manual intervention. In this article, we will do a mini case study on e-mandates in India.
What is an e-mandate?
Let us begin with the terminology “e-Mandate.” Doesn’t it sound like an electronic version of mandates? Well, it is quite true. But before digging into the details of this term, you need to have a clear idea about “Mandates.” A mandate is an authorization that you give to the bank to debit or credit your bank account. You can do it for monthly investments and to receive other payments. It informs the bank about a third party who can take financial actions on your firm’s behalf.
Sounds complicated! Right? In reality, it is as complicated as it sounds.
To solve this problem, bank tech has evolved with a new system, popularly known as “e-mandate.” It is a digital payment service. It is specially designed to streamline the process of recurring payment collection for companies without any manual intervention. In the year 2018, RBI & NPCI introduced the underlying IT infrastructure of e-mandate.
(RBI: Reserve Bank of India)
(NPCI: National Payments Corporation of India)
How does an e-mandate work?
As you know, e-mandate eliminates all the hassles of sending reminders, penalty charges, and delayed payments. Hence, this system has created a win-win situation for both parties (i.e., the payer & payee). It is a paperless and online process. You can provide instructions to your bank to debit a specific amount of money to your bank account automatically. It also ensures timely payouts and debits without any faults or delays. You can use it for insurance premiums, subscription fees, credit card payments, loan EMIs, SIPs (Systematic Investment Plans), etc.
Once you give an e-mandate to your business, money is transferred automatically. A specific amount of money gets transferred automatically from his account to your business’s account. See, how convenient it is to collect the payments for your business! There are two popular e-mandate platforms in India namely- ECS (Electronic Clearing System) and NACH (National Automated Clearing House). The former is an offline e-mandate process requiring tonnes of paperwork. While the latter is an online e-mandate process with minimal paperwork. You can adopt any of these two but since NACH is completely paperless… it will be beneficial for you. Also, RBI has increased the e-mandate limit for recurring payments from INR 5000.00 to INR 15,000.
Types of e-mandate
The e-mandate is further classified into two types based on credits and debits viz.-
- Debit Mandate: It will allow the bank to deduct a specific amount of money from your account periodically. It is useful for making various payments or investments.
- Credit Mandate: It ensures you automatically receive payments from your customers or payers.
Steps of Workflow
E-Mandate is entirely a digital process that helps to plan systematic investments or to receive timely payments. You need to follow these steps to successfully register and use the e-mandate:-
- Step 1: First of all you need to log into the website of the fund house. Then, fill in the details of the e-mandate form. The details will include the name of the destination bank (bank of the customer), account number, debit intervals, etc.
- Step 2: The fund house will check whether the bank of your customer is registered by the NPCI or not. Because NPCI registration is mandatory for creating a mandate.
- Step 3: Your customer will be redirected to the page of NPCI and the authentication website of his destination bank.
- Step 4: Your customer will authenticate the mandate through Net banking credentials.
- Step 5: Your bank will verify the account number and net banking credentials. You filled them on the fund house’s website.
- Step 6: The bank will display the mandate filled by the customer. It also confers an option of accepting or rejecting the mandate.
- Step 7: Once you accept the mandate, you will be redirected to the website of NPCI and fund house. Here, you will see the approval status of the mandate.
- Step 8: Thus, it confirms your e-mandate.
(Note: A fund house is a company that operates mutual funds)
RBI Guidelines for E-Mandate
Recently, RBI issued new guidelines to safeguard your interests for recurring payments. All of your recurring transactions will go through AFA (Additional Factor of Authentication). The transactions may include credit cards, debit cards, PPIs (Prepaid Payment Instruments), and digital wallets. Therefore, you need to have a brief idea about the recent guidelines of RBI regarding e-mandates-
- Two-factor authentication is compulsory irrespective of the number of payments.
- The users have to give consent if the transaction amount is more than INR 5,000.
- You will receive a notification within 24 hours before the debit.
- These guidelines apply to all kinds of users.
- AFA validation is necessary for the withdrawal of the e-mandate.
- Individuals with Aadhar-linked bank accounts can apply for e-mandates.
Now, here comes the most important section- The benefits of e-mandates. Apart from being a paperless process, it has several other advantages for customers and merchants described below-
- Smooth payment process– You can ensure a continuous cash flow through e-mandate. Because your customer can make the payments regularly just by simply logging in to your business website.
- High customer retention– You can automatically debit the bank account of the customers with one-time digital authentication. Also, iIt will help in the creation of a loyal customer base. Therefore, you will be able to retain the customers for a long period.
- Wealth management– E-mandate immensely helps to manage your financial portfolios. Also, with automatic recurring payments, business owners and investors can achieve their financial goals.
- Easy repayments– Do you know that the auto-debit feature of e-mandate caused massive growth in the lending industry? The banks can deduct a specific amount of money from the borrower’s bank account on a specific day of the month. Thus, you do not need to run behind the borrowers or banks for timely repayments of loans.
- Transparency and security– This is the most sought feature of e-mandate. It is a secured transaction method because the electronic financial industry maintains its PCI compliance to safeguard your data. (PCI: Payment Card Industry).
Thus, e-mandate has streamlined digital payment services in India to gather or make payments automatically without any human intervention. It has reduced a lot of friction in payments.