Automating Recurring payments with Third Party Validation (TPV): Why is it a necessity for BFSI Sector?

Projected to become the third largest in the world by 2025, the Indian BFSI market is in an exciting phase of growth. Yet, 92% of NBFCs have missed at least one critical compliance requirement during a 12-month period, which makes regulatory compliance one of the biggest ongoing challenges for financial institutions. It is critical to stay compliant with all the statutory provisions, rules and regulations, and various codes of conduct. For stockbrokers, mutual funds and investment platforms, Securities and Exchange Board of India (SEBI) has mandated Third Party Validation (TPV) on the customer bank accounts. In this blog, let’s take a look at how, as a BFSI entity operating in India, you can automate recurring payments for your business while staying SEBI compliant with TPV. 

What is Third Party Validation?

Third Party Validation (TPV) allows you, the business, to give your customer options to complete mandate registrations only via KYC-verified bank accounts.

According to the circular SEBI/HO/IMD/IMD-I DOF5/P/CIR/2022/29,

“Existing mandates being used for Mutual Fund transactions can continue to remain in the name of the stock brokers / clearing members, subject to StockExchanges/Clearing Corporations ensuring that Payment Aggregators (“PA”) puts in place mechanisms wherein beneficiary of the mandate can only be an Approved Account (which shall only be the bank account of the Clearing Corporation) such that:

1. PA shall directly credit the monies collected from the bank account of the investor only into an Approved Account; and 
2. PA shall not act on instructions of the stock brokers / clearing members to alter or modify the list of Approved Accounts and in no case the monies shall be credited to the bank account of the stock brokers / clearing members”

Who needs TPV?

Third Party Validation (TPV) ensures credibility and reduces risk for the businesses by verifying the underlying bank account before creating mandates. Let’s take a look at the industries that need TPV:

1. Mutual Fund Companies
2. Investment platforms
3. Stockbrokers
4. Microlenders and NBFCs

The end customer bank account validation is required for investment instruments, Demat account transfers, brokerage, and other payments specified by SEBI. When recurring payments are set up, the TPV integration ensures you are compliant and at reduced risk for payment defaults.

Let’s take a look at how to set up recurring payments and how Cashfree’s TPV works for different mandates.

How to automate recurring payments?

Cashfree’s Subscription suite offers multiple payment modes to automate recurring payments:

1. eNACH – With eNACH, you can provide same-day mandate creation for up to ₹ 1 crore to your customers. e-Mandates are a highly secure way to automate the recurring payments. The mandate creation is a simple process as the e-Mandates can be authenticated with the customer’s netbanking credentials or debit cards.
2. UPI AutoPay – UPI AutoPay combines the popularity of UPI with the convenience of automating the recurring payments. Here, you can set up UPI mandates for transactions up to ₹ 15000. Onboarding customers or borrowers onto UPI AutoPay takes less than 10 seconds.
3. SI on Cards – You can enable Standing Instructions (SI) on your customers’ debit/credit cards to set up recurring payments.
4. Physical NACH – For customers who are not technologically-savvy or lack digital access, you can automate the recurring payments with just their bank account details and physical signature.

Cashfree’s Third Party Validation (TPV) integration for recurring payments

Cashfree’s Subscription Suite supports TPV for both eNACH and UPI AutoPay. Let’s take a look at how Cashfree enables the BFSI businesses to set up recurring payments with TPV in both the mandate flows and helps you stay compliant with SEBI norms.

Third Party Validation in eNACH

While creating e-Mandates, the checkout page shows only the specified KYC-verified bank account. Here, the customer has no option to edit the bank account details. Once the customer authorises the mandate with either debit card details or net banking credentials, the e-Mandate is created successfully with TPV.

Third Party Validation in UPI AutoPay

For transactions below ₹ 15000, UPI AutoPay is the most preferred and convenient option to set up recurring payments. Let’s take a look at what happens when you create a UPI mandate with Cashfree:

1. The customer bank details are sent to the sponsor bank. The bank stores this information at their end. 
2. Cashfree’s checkout link is shared with the customer.
3. To complete the UPI mandate registration, customer clicks on the link and selects the bank account. The validated bank account details are displayed on the checkout page for the customer’s reference.
4. If the customer chooses the validated bank account, the UPI AutoPay registration is successful. If the customer chooses any other account, the UPI mandate creation fails.

Conclusion

Setting up recurring payments brings many benefits to BFSI businesses – be it uninterrupted cash flow, lower payment defaults, and a better customer experience. Cashfree gives you various options for setting up these recurring payments and ensures your credibility and compliance with the latest SEBI guidelines by integrating Third Party Validation (TPV) services with both eNACH and UPI AutoPay.

To know more about recurring payments or Third Party Validation, connect with our payment experts here.