What Is The Origin And Evolution Of NACH Mandates And Recurring Payments?

If you’re reading this article, chances are you are one of the hundreds of millions of Indians who have used NACH. It has become a way of life for us.

Full form of NACH stands for National Automated Clearing House and is India’s largest payments network. It allows banks to transfer funds from one account to another without having to make physical transactions. NACH provides real-time payment capabilities, allowing customers to access their money instantly and reducing waiting time on funds.

What is a Recurring Payment Mandate? 

The mandate is a document that authorizes the mandate holder to debit the account of the payer, who is also called the beneficiary. The mandate holder can be a person or an organization like a bank or an insurance company. 

A mandate can be taken in various fashions electronically using ENACH or physically using a physical NACH to a specific corporation, backed by a relevant authorization mechanism to be audited or approved by the customer’s sponsor bank (the account where the payer holds the bank account).

The main purpose of taking mandates is to facilitate payments between two parties that do not have a direct relationship with each other. This could include government organizations making payments to contractors and suppliers, insurance companies making premiums payments to policyholders, etc.

What is the Objective of Recurring Payments? 

The most obvious advantage of recurring payments is that it takes away the burden from users, who have to manually pay for services or goods every month or every year. Imagine paying your phone bill every month: you’d have to take out cash from an ATM or credit card terminal machine and then travel to a store to make the payment. This would be not just time consuming but also risky in many ways — especially if the merchant isn’t trustworthy enough to accept cash payments!

Another advantage of recurring payments is their security and reliability compared with one-time payment gateway. One-time payments are usually made online through online banking portals where users enter their bank account details once, while recurring payments are made via credit/debit cards where details are entered only once as well but repeated on a periodic basis (monthly).

What are the Types of Recurring Payments? 

ECS Mandates are primarily payer-initiated, where a biller is added to the payer’s bank account by the payer. 

NACH Mandates are primarily payee initiated where the payee creates a directive authorized by the payer through specific modes. 

UPI Mandates 

These are primarily payee-initiated mandates where the payee creates a directive authorized by the payer through UPI. 

Card Mandates 

The mandates are primarily payee initiated, where the payee creates a declaration authorized by the payer through a debit or credit card.

What are the Benefits of NACH Mandates?

NACH is a payment system that allows customers to authorize recurring or one-time payments from their bank accounts.

A lot, as a payee and payer. Due to its security and flexibility, NACH facilitates recurring payments of high value or high frequency but not of high time sensitivity. 

From a payee’s perspective, NACH ensures that a payer cannot cancel a mandate without requesting the payer. This is a critical risk mitigant for various industries like Lending & Insurance, where there’s a risk of default.

From a payer’s perspective, NACH requires full customer authorization through the use of account information like Netbanking login credentials or Debit card information. It also eliminates the hassles of repeated manual payments.