If you have had the chance to have a look at our article on eNACH, you should have noticed we speak about “Mandates” extensively there.
Yes, this is an extension of our article on eNACH. I wanted to talk about “Mandates”, more specifically “eMandates”.
In most cases, eMandates and eNACH are used interchangeably. In this article though we try to define what exactly these terms mean and why is there confusion on the subject.
To begin with, let’s start by defining what eNACH is?
NPCI the creator of eNACH and the regulator for payments in India on its website defines “National Automated Clearing House (NACH)” as a web-based solution to facilitate interbank, high volume, electronic transactions which are repetitive and periodic in nature, implemented for Banks, Financial Institutions, Corporates, and Government.That’s the official definition you can read more about it here
A detailed definition of eNACH is available on our blog of the same name.
In layman terms, NACH is a way for organizations and government to automatically send and receive recurring payments from users automatically.
NACH itself consists of 3 different formats,
- NACH – Paper-Based Mandates
- eNACH – eSign mandates
- eNACH – API Mandates
The type of mandate is the difference between the types of NACH one can use.
NACH with Paper-based mandate is the most common type in use in India, while the eSign Mandates were scrapped after the Supreme court’s verdict on Aadhaar and the latest in the series API Mandate based eNACH was launched right after that.
Mandates are an integral part of NACH process, they are the consent that a customer gives a merchant or government to receive money from customer accounts.
Consider the NACH process below,
Mandates are signed by customers to be sent to the bank of the organization and then to customers bank for approval which ultimately activates NACH on the customer’s bank account.
From everything that we spoke about and due to lack of an official definition (I couldn’t find one on NPCI website), here is our definition of eMandate
“Mandates is paper or digital authorization provided by the customer to the business to activate NACH payments on their bank accounts. “
Types of Mandates
NACH is differentiated based on the type of mandate being used, in this section we try to briefly describe each of these mandate types and how they work.
- Paper Mandates
- Digital Mandates signed with eSign
- API mandates authorized using Debit card or Netbanking
Paper Mandates is what was used in the initial days of NACH, the authorization was given by clients by filling out and signing an authorization form (mandate) provided by the business, which was then sent to the Banks and NPCI for approval and activation.
Paper Mandates were digitized with the availability of Aadhaar based eSign, instead of wet signing as was in case of paper mandates, the authorization form was signed using Aadhaar based eSign. Once signed the merchant had to follow the same process of sharing the digital copy with his bank and NPCI for approval. This particular format of NACH is what is called eNACH with Aadhaar eSign.
The latest in series of Mandates by NPCI, API eMandates allows users to authorize NACH on their accounts using the Netbanking or Debit card, which is completely online (read API based) and doesn’t require the mandate forms to be sent to banks. This is built to replace eSign based authorization that was given by the customer. This is the first completely digital and the fasted eNACH process currently available in the NACH ecosystem.
As of now payments methods like UPI, and credit cards already exists and most of them work with most customers in Tier 1 cities and metros. Though the problem arises when you as a business decides to expand into Tier 2 cities and rural belts of India. Where penetration of UPI apps and credit cards is minimal.
You can read about various recurring payment options in India in the article here.
With Pradhan Mantri Jan Dhan Yojana and other digital India initiative by the government, most citizens would have access to bank accounts and debit cards. Such a scenario would make eNACH the easiest way to accept recurring payments from the customer especially in Tier 2 and Tier 3 cities.
Until next time!