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Reintroduction of eSign based eMandates: What does it mean?

Naresh Kini

The NPCI (National Payment Corporation of India) has reintroduced eSign based electronic NACH (National Automated Clearing House) mandates. This latest update shared via a circular dated May 26, 2020, is bound to cheer Banks, Lenders and other institutions.

To fully understand the positive implications of reallowing this service, let’s first take a look at eNACH and why it is essential. The NACH mandate  is an authorization given by a customer to Banks, Lenders and other institutions like Insurance companies, mobile service providers etc. to Debit his account periodically.

The original NACH procedure or the paper NACH is time-consuming and expensive for service providers. The paper NACH mandate form needs the customer’s wet signature to begin processing. The form carries the details of the amount that the customer has authorised to be periodically debited from his account.

Paper based NACH mandates had some inherent drawbacks.

1. Time-consuming

This entire process would generally take 7-14 working days. This would mean various business delays for the company or bank requesting NACH. Customer inconvenience and escalating costs were also important drawbacks.

2. High Rejection

NACH authorisation requests see a significantly high rejection rate of approximately 30%. This can be due to reasons like a signature mismatch, missing details, soiled forms, etc. This contributes to spiralling customer acquisition costs and delayed money transfers.

Enter eNACH. It solved all the problems that came with the traditional NACH mandate. eNACH digitised the entire process by using technology to provide a paperless experience with minimal human intervention. The eNACH processes crunched the 14-day processing time to just 1 day. The biggest hurdle eNACH overcame was getting customers to sign physical forms.

To allow faster processing NPCI allowed eNACH to be processed in two ways. First is the eSign based eNACH while the second is API based eNACH. While the eSign uses Aadhaar based verification, the API method relies on verification through Net Banking or Debit Card details.

The eSign based verification is a much simpler process which can be completed in a few simple steps.

  1. Customers chooses the eNACH through eSign on the service providers website or app.
  2. The company’s website/app makes a server side API call to Veri5 to create an authentication session for the user.
  3. The customer verifies Aadhar details after which OTP is generated on his registered mobile number.
  4. Customer completes the authentication by entering OTP.
  5. Veri5 sends the authorised eSigned mandate to the Sponsor Bank in real time.
  6. The Sponsor bank in turn sends the mandate to the NPCI along with an acknowledgement.
  7. NPCI sends the esigned mandate to the Destination bank which is also the customer’s bank.
  8. Upon successful verification by the Destination Bank, it sends a confirmation message to the customer .

Due to its simplicity, eSign based eNACH is popular among Banks, NBFCs and Fintech companies for validating mandates. It is also used widely by digital lenders for cost-effective, paperless collections of recurring loan payments. Consumers who have to pay for their SIPs, monthly loan repayments and others can avail an auto-debit facility from their banks by giving consent through Aadhaar-based OTP.

Here are the benefits of incorporating eSign base eNACH.

1. Saves time

eSign based eNACH authorization mandates are processed immediately upon entering the OTP sent on the customer’s mobile. This does away with the need for the customer to visit the branch and sign the mandate and the ensuing process.

2. Saves cost

This includes the saving of cost in carrying out the paperwork. The travel expenses incurred to ensure that the paper is signed and reaches all the concerned stakeholders are saved.

3. Faster onboarding

Companies can breeze through the customer onboarding process using the eSign based mandates. This process allows customers to authorise mandates irrespective of their geographical location.

4. Reduced fraud

The process is designed to prevent people from physically signing for somebody else. Generation of OTP on the registered mobile number ensures that the correct person is doing the eSign.

5. Higher security

The eSign process has a lot of stakeholders like the NPCI, the facilitating bank and the customer’s bank. Each of these entities follows the strictest data protection protocol during this process.

6. Legally valid

The eSign is a legally recognized service by the Government of India. In fact, the government has released guidelines for Certifying authorities who offer eSign services to citizens having a valid aadhaar card. It is important to note that the customers’ aadhaar card needs to be updated with this phone number to ensure the seamless execution of the process.

There are a few software service providers in the market who provide reliable eSign solutions to financial players. The solution offered by Veri5 Digital is a notable one among these. The Veri5 eSign comes with some unique features which can be useful to the end-users.

1. Flexible signature placement

Veri5 eSign offers to place their eSign on multiple pages of a single document. Users can also sign at a specific location on each page.

2. Multiple verification methods

This solution allows customers to eSign using the Aadhaar OTP or their fingerprints registered in the system.

3. Flexible deployment models

The software solution can be easily deployed over the web and mobile applications as well as on-premise deployment. This ensures easy availability of the authorization process adding to the efficiency.

However, in spite of being popular this service was suspended by NPCI via a circular dated November 23, 2018. The suspension was a result of the Supreme Court’s Aadhaar ruling, which curbed the Aadhaar-based eKYC process and biometric access of aadhaar holders. This forced several fintech players to use either API based NACH or the conventional wet signature route.

Here are some figures that show the popularity of eSign based eNACH. Today when eMandates can be processed using only API based eNACH 34 banks have opted to do so. Compare this with 120 banks which were live on the eSign-based process at the time of its termination.

The NPCI circular dated May 26, 2020, has greenlit the use of eSign based eMandate (2.0) with effect from June 01, 2020. NPCI has introduced extra validations in the central system to ensure higher process efficiencies.

The industry is bound to welcome this move as it will allow companies to cater to more customers by processing NACH mandates faster. Besides sending the right signal to companies, the reinstating of eSign-based eNACH mandate has once again made opting for the auto-debit facility a breeze for customers.

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