A right HS Code ‘need of hour’ for NPSP Success

Posted on May 6, 2019 by Sudhir Singh

National Policy on Software Product provides for creating a HS Code under Strategy item 1 for “Promoting Software Products Business Ecosystem”

The tax regime will be demarcated for ‘Software Products’ from ‘Software Services’, by providing clearly defined HS Code for the “Software products (intangible goods)” delivered through any medium; physically or online using internet (to be published within three months of notification of this policy). A model HS code will be evolved that will be further sub categorized based on the type of software products, its inter-linkages with other economic sectors, including services and hardware manufacturing. Thus, software products defined by such identifiable HS code will be treated as goods manufactured in India and will be able to avail all incentives provided under Make in India Programme.

Objective of this blog

There are number of challenges to get the HSN Code issue resolved and to get a right HSN code from the Govt. of India. This blog is an attempt to understand the regimes of HSN/SAC Code use and its application to promote a Software product industry in India to implement the above said item in the NPSP 2019.

It will be good to read the following reference documents (Click below to read)

Present status of HSN and SAC Code

After launch of GST, all transactions are to mention the relevant HSN code /SAC Codes are must to be mentioned in Invoices. HSN for Goods and SAC for services.

Under GST regime, all IT Software has been treated as “Service”. Yet, there exists HSN codes and SAC codes both. HSN codes traditionally meant for physical exports through ports still exist in GST regime as there still will be Physical exports through ports.

iSPIRT has time and again represented to Government of India that the provisioning for a “Digital Goods” regime will help India embark upon a Software product wave. However, the GST regime has assumed all Software as service.

Following HS Codes or SAC codes are in use by Indian Software product companies.

For a full view of the codes relevant file links at CBIC are given above.

HS Code	Item Description
4907 00 30	Documents of title conveying the right to use Information Technology software
4911 99 10	Hard copy (printed) of computer software (PUK Card)
8523 80 20	Information technology software on Media (Packaged or Canned)

SAC code

Item Description

9973 31

Under 9973 – Licensing services for the right to use intellectual property and similar products.

Licensing services for the right to use computer software and databases.

9984 34

Under 9984 Online Content

Software downloads

Most prevalent uses are of

8523 80 20 – for packaged products and downloads
9973 31 – SaaS Software

Following Codes are specifically for use of Software Services companies

Under Category 9983 – Management consulting and management services; information technology services.

9983 13	Information technology (IT) consulting and support services
9983 14	Information technology (IT) design and development services
9983 15	Hosting and information technology (IT) infrastructure provisioning services
9983 16	IT infrastructure and network management services
9983 19	Other information technology services n. e. c

The coding mechanism covers both international trade Domestic Tariff Area (DTA) under new GST regime for invoicing.

Present coding is bottleneck for Software product trade

The above coding scheme has emerged from a traditional regime which

Classifies only physical ‘goods’ can only qualify for cross-border trade and hence under HSN and
Software sales is a ‘license to use’ in stead of a product trade.

In addition, it induces a confusion in SAC 9984, where it also lists Software downloads along with other content.

‘Software’ has not been given recognition but how Software is delivered is given an importance.
It also does not allow us to account for Software product in a clear manner, both Domestic and International Trade Statistics.
It does not allow us to ‘account’ for emerging segments of Software products due to technological change.
It is also confusing in sense packaged software downloads can be classified under 9984 also.

“Having right code system is Central to promotion Software Product Industry and related ecosystem.”

A proper classification and coverage will help us promote Indian Software product industry and account for Software product trade verses Software services bother internationally and domestically.

Adoption of Software product will be an important measure of maturity of digital economy.

What is needed to boost SPI under NPSP

The very basis of NPSP launch by Government of India is the recognition of our Competitive advantage in “Software” and hence capability to create world class products.

We have earlier presented papers to Govt. where “digital goods” verses “services” debate is in advanced stage.

Despite being a Software power house, Indian today has a digital deficit.

Recognizing the “Software products” as a new reality will boost India’s strength in “digital deficit”.

Recognize Software product and Distinguish Products from Services

The goods/products exhibit the following properties (as per internationally accepted definition):

Durability (perpetual or time bound)
Countability – traded commodity can be counted as number of pieces, number of licenses used, number of users etc.
Identifiability – identified as a standardised product
Movability and storage. Can be delivered and stored and accounted as an inventory
Ownership of the right to use
Produced/Reproduced through a process
Marketable/Tradable or can be marketed and sold using standard marked price (except when volume discounts, bid pricing and market promotion offers are applicable).

as distinguished from services that are consumed either instantly or within very short period of time or continually coinciding with the activity of provision of service.

Software product exhibit all the properties of a ‘good’ except that they are intangible. Hence, Software products is an ‘intangible’ good, with discrete symptoms.

Software product brings in high value for the Software manufacturer and is normally tied to “Intellectual Property” in its development. Traditionally all software products were installed and used on end-user computers.

However, with advent of cloud it is possible to ship same product as ‘on-premises’ product (to be installed and used by end-user on their premises) or be installed on computers/cloud resources owned by original manufacturer and used by end-user through internet.

The latter is category called “SaaS” based products.

Some Software take a expanded view and present themselves as ‘platform’ with multiple products integrated together capable of being used alone or as set of products and services and ability to serve at country or global scales.

‘Platforms’ are a reality in software world and to be a power in global game, countries having large “platforms’ will be winders. India has the capacity and capability, but has systemic bottlenecks to be removed.

Technological changed will bring in newer dimensions of trade. In 2019, India should provide direction to worls by setting new trends and nudge global community in that direction.

Software products trade can’t be delimited under ‘license’ to sale regime only.

Trade is central to success of an Industry. Treating Software as mere ‘license’ is limiting the trade under Indian tax regime as of now.

The IP and ‘Software product’ is central to original Software manufacturer (Software product company). Yet, it is a ‘product’ or intangible good.

Other ‘goods’ also have IP attached as patents and copy rights, but that never is the ‘license’ a barrier to sales.

Treating Software product as a license is creating a barrier, as then each sales of Software product is subjected to “withholding tax” regulations under direct taxes.

Treating Software product as intangible goods neither infringes the ownership of IP of Software OEM nor does it cause loss to tax. But, it lubricates the trade.

Break through from tradition leads to success

The traditional understanding of trade in tax regimes does not account for technological changes. Indian took a lead in past and has a reference point of adopting such changes to successfully create an Industry.

India created a success of IT Services industry by breaking tradition. In 1992, there was a similar problem that faced country after launch of Software Technology Park (STP) Scheme. As per customs, the exports of any goods could happen only through ports or at best from foreign post office.

To enable exports through data communication links, SOFTEX form was introduced, feeling the need of hour. This was a breakthrough from existing regulations that gave us glorious 25 years in IT.

Indian can have another glorious 25 years of being a Software power, by adopting a mechanism that can distinguish the Software products from services and recognises Software product as intangible goods.

Recommendations (for creating SW product ecosystem)

A HS code classification for following categories can be issued using the last 2 digits (first 6 Digits being defined under international system).

Following category of definition will solve the issues of raised above for creating favourable environment a Software product Industry.

(i) 8523 80 20 – IT Software on media that is not Off-the-self i.e. not covered under Product
(ii) 8523 80 21 – Software Product (Pre-packaged software downloaded or Canned Software)
(iii) 8523 80 22 – Software Product hosted by OEMs on cloud (SaaS, PaaS Model of Software) and used by end-clients using internet.

Note: Problem with 85238020 is that it can be any Software. The only requirement is it is Information Technology Software and on media.

This will give cover for all Software products in following two categories and leave (i) above for Software other than product on media.

S/W product Used – On premises (on computers/private cloud of end-user) – 8523 80 21
S/w product On Cloud of OEM – 8523 80 22 (SaaS/PaaS)

The above recommendation is minimum basic and should not be a limitation to a more wide and granular classification e.g. a different code for SaaS and PaaS etc.

Can we use SAC code?

It is recommended to use HSN rather than SAC for “Software product” for following reason.

(i) The Software ‘product’ attribution is difficult in Services codes and will always be confused with services. SAC is not right place either for a ‘product’ image or for a trade accounting of intangible ‘goods’.
(ii) The SAC code classification is not targeted at distinguishing Software services and Software product. Also, the license to use a database can not be same as license to use a pre-packaged product.
(iii) It is better Software product are defined in HSN to capture both national and International trade Statistics. Not having them at one place will create redundancy, with chances of lot of import happening under a code under existing HSN 85238020. (The idea is to get clear distinction between Software product from services)
(iv) In a “Digital Economy” eventually Software products will have a international trade dimension. Hence, HSN code is a better place.
(v) The whole idea of NPSP is to get Software product recognition with a vision aiming India as a “Software product nation”. Hence, we need to start accounting for intangible mercantile”. To make these changes will nudge the system in that direction.

Note: Some countries have created a HS code under 98/99 for Downloaded Software e.g. China has a code under 980300 for Computer software, not including software hardware or integrated in products. Similarly, some countries are using 9916 as a code for pre-packaged software.

Conclusions

Future of ‘digital economies’ will see trade wards on ‘digital goods’. A meaningful breakthrough from traditional trade regimes is must for a winner. India must be a winner and we should play our games in the area we have enough capability.

Software product Industry is some thing Indian needs badly both for domestic and international trade, specially when our IT Services industry growth is diminishing day by day.

Let us power up the “Software product’ with new coding and classification that recognises Software product with legitimacy to do provided by NPSP.

In 1992, MeitY (then DOE) took lead and created a breakthrough that led to 25+ years of Success of IT Industry. Once more MeitY leadership can take lead and create next 25 golden years by making Indian a Software product nation.

SaaS founders discuss NPSP 2019 with MietY Officials in Chennai

Posted on March 13, 2019 by Sudhir Singh

Shri Rajiv Kumar Joint Secretary in-charge of National Policy on Software Products (NPSP 2019) and Senior Director Dr. A K Garg met 20 SaaS companies founders and leader in Chennai on 13th March 2019. At meeting it was discussed that NPSP announced by Government of India on 28th February will soon create a National Software Product Registry, where SaaS companies can register and have access to GEM portal. Also, the procurement process will be suitably amended to allow Govt. departments to procure and use SaaS products. ‘National Software Product Mission (NSPM)’ envisaged in the policy will be setup at Ministry of Electronics and IT (MeitY).

Government has launched NPSP 2019 to focus on Software product ecosystem. iSPIRT has been advocating the cause of SaaS segment in Software products and its importance for India to remain a force to reckon with in Software in next 25 years.

The event was a golden opportunity for SaaS companies Founders and leaders, to provide feedback to and understand from the senior officials in Delhi, about the vision they have to make India a Software product power. Twenty SaaS companies represented in the event.

Speaking on behalf of SaaS founders, Suresh Sambandam, Founder and CEO of OrangeScape said,” Global landscape has changed very fast driven by new technology. We have a 2 trillion Dollar opportunity for SaaS industry. If we get our act right, India can aspire to remain in global game in Software Industry”.

The roundtable was organised by iSPIRT Foundation to facilitate officials to have direct interaction with SaaS industry and understand issues, problems and opportunities in SaaS industry, to enable Government to further carve out schemes/ programs under NPSP 2019 going further.

National Software Policy 2.0 needed

Posted on November 13, 2016 by Sudhir Singh

A recent article by Andy Mukherjee, predicting the end of India’s IT industry has caused lot of commotion. Though, the ‘end’ is an exaggeration, the warning of the ground slipping is not new. The declining growth is owing to the rapid transformation in technology and Software Industry itself, globally.

The first Software policy of 1986, resulted into Software Technology Park (STP) scheme in 1991. Undoubtedly, the policy was highly successful with IT industry today accounting more than 9 % of GDP.

Despite diminishing growth, even after 25 years, old Software policy (1.0) of 1986 still prevails, with focus on IT services. A reworked IT policy 2012, is generic, remained redundant with no meaningful churn out for new age Industry.

Failure to capitalize on the capability built in last quarter century can have serious consequences. The onus lies with Ministry of Electronics and IT (MeitY). However, MeitY seems to be missing on following four issues.

One, Software is core, not IT enabled Services (ITeS). Two, not able to gauge the shift in fundamental industry structure globally from ‘services’ to ‘products’ and also ‘cloud’ based products. Three, not able to appreciate ‘national competitive advantage’ has moved up the maturity curve to ‘Innovation stage’. Four, a phlegmatic approach resisting shifting gears swiftly.

To address these strategic paradigm shifts, a Software 2.0 policy is needed with ‘product’ as focal to it. We are at least 5 years late in our action here. Let us delve here into the four issues and related actionable.

Software is the focal sector in IT

It is important to understand here, that the genesis of today’s IT Industry was ‘Software’. The empirical evidence highlights real horse power coming from Software. IT enabled services (ITeS) is a derivative or related sector that grew through a ‘pull through’ effect of various related determinants (R. Heeks 2006). This is true even when we cut through the industry’s maturity stages. The ‘core’ has to be energised for new paradigm.

Product focus (new paradigm)

The big sector level transformative shift is ‘Standardised Product’ taking the center stage. This cuts across the ready Software packages (small, modular or enterprise grade), SaaS, PaaS and mobile apps.

The only subtle difference which remains is, whether a ‘product’ is sold to the end-user as ‘goods’ or a ‘product’ is hosted by SaaS or PaaS producer to provision the ‘productised service’. Even IT services business now hinges at standardised ‘products’ for revenues.

Shifting National Competitive advantage

For about a decade no one believed that Software policy 1.0 could make India a super star in Software sector. It is only after about a decade, researchers recognized that India, a developing country could become a follower nation in Software sector. This was in sharp contrast to other 2 rising countries in same period of late 1980s i.e. Israel and Ireland, who were ascribed as Industrialized nation by world bank even in that period among the 3Is.

Usually academic researchers have not been very successful in predicting or prescribing favourable industrial policy for a country. But, they have played an important role when we apply an established research for analysing a sector’s performance and understanding the needed strategic shift.

Also, the classical economics models of ‘comparative advantage’ do not fit well for a sector like Software which is replete with advanced factor conditions.

The most comprehensive model to deep delve into this search is Michael Porter’s theory of competitive advantage (The Competitive Advantage of Nations, 1990). It goes beyond the macroeconomic theories on competitiveness and also incorporates the aspects of business and industry with advanced factors such as technology & innovation. The “diamond” model is based on four main determinant categories viz. factor conditions, demand conditions, Related and Supporting Industries and Firm Strategy, Structure, and Rivalry. It also incorporates and interlinks two extra parameters of a) chance and b) Government policy. For India both these played a vital role.

Porter’s Diamond Model. Source: The Competitive Advantage of Nations, 1990, Michael Porter’s (Kindle book, position 3060)

The national competitive advantage is based on the advanced level interplay of these determinants in the above diamond, network.

The model may lack in taking into account the new emerging factors of cloud and mobility computing. Yet, it offers a comprehensive and advanced postulation that can help understand the sectoral impacts.

Richard Heeks (2006), using this model concluded the competitiveness of Software sector of India. So also Bhattacharjee and Chakraborty (2015), further building on Heeks study. Richard Heeks (2006) says, “full diamond is not (yet) in place”. Whereas Bhattacharjee and Chakraborty (2015), recognize the full diamond in place. (Please see reference below at bottom)

Going beyond famous diamond model, the stages of development as postulated by Porter are more relevant to understand our readiness for ‘product’ stage. The stages in order are ‘factor driven’, ‘investment driven’ and ‘innovation driven’ (the last wealth creation points decline). R. Heeks (2006) finds ‘Investment driven’ stage in 2006. Bhattacharjee and Chakraborty finds ‘innovation’ having swept in the period 2012-2015.

Stages of development. Source: The Competitive Advantage of Nations, 1990, Michael Porter’s from kindle book location 9634

“Govt. helping improve the quality of domestic demand and encouraging local startups” is representative of ‘innovation’ stage, says Heeks (2006). One can easily map here, the conditions arising to launch of StartupIndia policy 2015 and other accompanying developments.

Yet another symptom of ‘innovation driven’ stage is the domestic demand conditions undergoing a rapid change. ‘Digital India’, GST and UPI are not only concurrent, country scale demand generation programs, but also innovation boosters in domestic industry.

Porters, argues for a proactive role for cluster in National competitive advantage. The clusters enable innovation and speed productivity growth. The Silicon Valley and Israel’s Silicon Wadi are clusters that contribute to regional growth as well as making them as global brand. India has a distributed cluster model spread across various Tier 1, Tier 2 and Tier 3 cities. Bangalore, Hyderabad, Pune, Delhi NCR and Chennai being prominent.

India has enriched these clusters in the investment phase recognized by both the referred researches above.

In India, a mass of new age Software product startups has emerged touching wide array of industries. Advanced and specialized factor resources are emanating from the Software product development happening in the captive offshore center, R&D centers of MNCs or by outsourced product development (OPD) vendors, across all major IT cluster in country.

India therefore is poised for a phase 2 of Software Industry this time with product focus.

Emerging SaaS segment has global reach

SaaS can be the next game changer for India. The national competitive advantage can be capitalized for creating a SaaS industry, and puts India in first three slot on global map.

Many Software as a Service (SaaS) companies like Zoho, Freshdesk are already global market place names, pitching for leadership in their own segments. It proves the power of SaaS to give edge in exports.

Out of more than 200 SaaS companies, number of them have incorporated outside, owing to the friction in doing global business from India. Software 1.0 policy doesn’t care for their issues. This loss can be plugged with Software 2.0.

Swift action needed by Government

India’s IT sector is strong enough to face changing technology challenges. It needs a ‘product nation’ based proactive strategy, that deals with ‘product ecosystem’ development, R&D, domestic demand boosters, frictionless trade and tax regime.

MeitY should rise to the occasion and announce a macro level policy framework, without wasting further time. Action plans (schemes, programs, incentives and institutional setups) can follow on need basis and in phased manner. This is how it happened in Software 1.0 policy as well. A new institutional setup is required. ‘National Software Product Mission’ should be setup urgently to cater to emerging Software product industry.

‘Software product power’ is cardinal to retaining global Software ‘power’ tag. Globally Software product market is estimated to be $1.2 trillion by 2025. India needs to target for 10-15 % of this. At home front, India needs to create ~3.5 million new jobs by 2025. Choices are limited.

iSPIRT has been working with MeitY for last 2 years to persuade them for taking a stand for a national level product industry while the service industry keeps growing. A nine point strategy draft is under consideration. But it has taken lot of time. In hardware product space, we have National Electronic Policy 2012. A National Policy on Software Product will replenish the industrial policy basket of MeitY and usher in growth in new areas of both domestic and international trade.

“Mere incremental progress is not enough. A metamorphosis is needed. That is why my vision for India is rapid transformation, not gradual evolution”, said Prime Minister at NITI Aayog recently.

We hope the announcement of the long pending ‘National Policy on Software Product’ (NPSP) will soon be forthcoming. Only then will PM’s dream of rapid transformation, become a reality to catalyze an “Indian Software 2.0 industry”.

Main References used

1. Research article “Using Competitive Advantage Theory to Analyze IT Sectors in Developing Countries: A Software Industry Case Analysis”. By Richard Heeks, Development Informatics Group Institute for Development Policy and Management School of Environment and Development University of Manchester, Manchester, United Kingdom. http://itidjournal.org/itid/article/viewFile/228/98

2. Research paper, “Investigating India’s competitive edge in the IT-ITeS sector”. By Sankalpa Bhattacharjee and Debkumar Chakrabarti (Peer-review under responsibility of Indian Institute of Management Bangalore). http://www.sciencedirect.com/science/article/pii/S097038961500004X

3. The Competitive Advantage of Nations, by Michael E. Porter’s Free Press edition 1990

Recurring Billing for SaaS. Is it available in India?

Posted on September 13, 2016 by Sudhir Singh

Recurring Billing – demystified for SaaS companies

Abstract

For any SaaS Startup with India market focus, the biggest bottleneck today is recurring billing. It is not available as an open, over the counter service from payment gateways. Most startups have to work around to solve this problem. The workaround may be using an expensive international payment gateway or it may be incorporating a subsidiary in foreign geography. Many startups also move all out of India, if they can afford to do so. In the process India loses some good SaaS companies.

Reading into details, recurring billing is not banned by RBI in India. But, banks and payments gateways do not have the offering available over the counter. Complying with two factor authentication (2FA) and the associated risk of chargebacks are the reasons behind. The payment industry experts say, banks offer it but needs to cover their risk for chargeback scenarios. So, one has to negotiate with banks and therefore large players are able to avail these services.

To bridge the gap startups like Razorpay are building the aggregator payment platform that that can work between the SaaS startups and the Banks to offer recurring billing.

Since, it is not smooth enough, recurring billing is an area, which requires policy maker’s attention. To realize the full potential of a single unified market under GST, the ‘Digital India’ requires a more open, clearly defined and an enabling policy and procedure on digital payments, at par with developed countries.

This article is based on a deep dive into the problem of recurring billing, with experts from payment solution companies Krish Subramanian, Co-founder, Chargebee (Subscription Billing & Recurring Payments Software) and Kiran Jain of Razorpay (a payment gateway aggregator).

Embedded below is a hangout video with these two experts. You may like to watch the video and/or read the blog piece below (which is built on the conversation in the video).

Some terms used in online payment industry

Recurring billing

It is a subscription driven model of charging or collecting payment from customer. Both the frequency interval of charging and amount charged are fixed to qualify for recurring billing. Software as a Service (SaaS) companies are the biggest users of this service.

Merchant: A person or business who want to sell goods or services.

Acquiring Bank: It is the Merchant’s Bank

Card holder: The buyer who owns and uses a credit/debit/prepaid card etc. to buy goods and services

Issuing Bank: It is the Cardholder’s Bank. An issuing bank issues credit cards to consumers.

SaaS industry and status of recurring billing?

SaaS startups offer products or productized services in a subscription model that runs in a per user/seat at a fixed frequency say per month. In SaaS industry, the recurring billing is often at a low cost transactions e.g. $10 to $50 per user per month.

In developed countries like USA online payment gateways and payment aggregator offer these services. A startup in India can sign for the service from these international payment gateways (like 2Checkout and PayPal) sitting in India. This can be done with minimum paperwork and absolutely no hassles. But, the cost is almost double the cost of payment gateway services in India. The down sides are payments may not be real time. Also, currency conversion cost twice. Once, when the Indian customer pay in foreign exchange and again when the international payment gateway pays to the Indian merchant.

Problem is the Indian payment gateways do not provide the recurring billing option as seamlessly as foreign payment gateways. Hence, the need to go to foreign gateway, when an Indian SaaS company wants to sell to Indian customers.

Krish of Chargebee adds, “for SaaS companies a non-negotiable aspect to provide frictionless experience to customers is the ability to collect payments on month on month basis”. (please see the video)

Statutory position of recurring billing in India

If one reads through the RBI’s circulars on two factor authentication (2FA), there is no mention of recurring billing. The RBI’s communication vide RBI/2011-12/145 DPSS.PD.CO. No.223/02.14.003 / 2011-2012 August 04, 2011 covering card not present (CNP) transactions which includes online transactions as also the IVR transactions states following two conditions:

Based on the feedback from the stakeholders and keeping in view the interest of card holders the following directions are issued:

(i) It is mandatory to put in place additional factor of authentication for all CNP transactions indicated in para 4 of our directions dated December 31, 2010 with effect from May 01, 2012.

(ii) In case of customer complaint regarding issues, if any, arising out of transactions effected without the additional factor of authentication after the stipulated date, the issuer bank shall reimburse the loss to the customer further without demur.

For an avid policy interpreter this means 2FA is the requirement for every transaction. It is not a straight forward clear position.

Kiran Jain of Razorpay, reads in to the sentence of same communication, where it says, “The matter was discussed in a meeting of banks with the Reserve Bank of India on June 22, 2011 wherein it was emphasized by the Reserve Bank that while it was not advocating any specific solution in this regard,”. Kiran says, “From RBI perspective there is no restriction in India”. According to him recurring billing is allowed under RBI guidelines provided in first transaction 2FA is followed and there is no restriction even by banks. (please see the video)

If recurring billing is allowed why is it not available openly?

Banks have a risk in complying with the mandatory charge back, in case when customer files a complaint. The issuing banks are supposed to refund to customer in case complaint from the customer. Normally the risk is never transferred to the acquiring bank.

Kiran in the conversation talks about the lack of understanding on risk involved, by merchants in India. Banks needs to cover their risk through transaction fee. Merchants in India don’t want to pay high transaction fees, that can cover the risk involved in charge backs.

Banks are not willing to underwrite the risk for small players. This is why there are no readymade recurring solutions available in Indian online payments.

How can this risk problem be solved?

Kiran says, “the alternative is to create a partner in between the banks and the ecosystem of SaaS companies, who is willing to underwrite the risks”. Razorpay is one such player, who is attempting to solve this problem.

Why can’t a Startup go to Bank directly? What is the way out?

The problem in recurring billing is not only the payment gateway but also the management of the subscriptions. Baking systems are all legacy systems. They are not able to handle the dynamic situations. For example, if a customer lost the card, the new card information should be updated in time. Such gaps are filled by the layer created by third party Payment Gateway solutions.

Also, this further requires some subscription management systems in an online system. Krish calls this “billing intelligence”. This can either be provided by ready made solutions like Chargebee or can also be built in-house.

Startups can solve this puzzle by availing solutions offered by companies like Razorpay and Chargebee. Razorpay reduces the complexities of recurring billing on banking side. Similarly, Companies like Chargebee reduce the complexity of “billing or invoicing intelligence”.

What more can be done on Policy side?

Krish feels, if we engage with banks and banks can build a system that can underwrite risk for small players and also make Bank realize how service providers can help mitigate risk, there can be a chain built to see a successful recurring billing system in India, easily available to SaaS startups.

Kiran’s view is, from policy perspective not much can be done as RBI does not mandate anything specific. It has do’s and don’t type of framework. His view is charge backs are like non-performing assets (NPAs). So, large merchants in India will still get recurring billing solutions from many payment gateway solutions easily and will also have in-house capability to build billing and invoicing platforms.

Looking further (iSPIRT’s Views)

If one researches hard there is possibility to find payment gateways offering recurring billing solutions in India. However, there are lots of questions asked and it is certainly not available as an across the counter service and definitely not to everyone.

Aggregator service like Razorpay have a chance to fill this gap and they will offer valuable service much needed by Startups. A combination of solution like Raozorpay + Chargebee could solve the problem for many startups.

RBI has not banned the recurring billing. On other hand it has also not put the record straight. Going further, there is a need that RBI and Government of India recognize the importance of recurring billing in a digital economy. Once the need is recognized, a layer of reform in policy framework by RBI should be added. Clear regulation that covers all stakeholders as well as encourages banks to offer recurring billing solutions, is needed. A digitally signed online agreement that is backed up by a 2F authentication in first transaction should be enough to cover the paper formalities required for a fixed amount, fixed tenure (frequency of payment) transactions. The buyer of service can revoke the online service agreement online any time. Customer’s risk is therefore limited up to the time he opts out of the service agreement.

RBI will not take actions that promote an Industry. It is Government of India, who should create an enabling policy for SaaS companies. Ministry of Electronics and IT (MEIT) can carve out a scheme that can mitigate risk of Bank, in turn helping SaaS industry. Such things should happen under the National policy on Software product being considered by MEIT.

The bottom line is that the Indian businesses must have access to multiple choices of service providers for availing recurring billing services at a low cost per transaction with a well laid out fraud protection and complaint redressal mechanism.

Both GOI and RBI needs to work together in direction of removing the bottlenecks. India is unveiling a unified digital market with GST coming in. Without seamless digital payments not only we will fall short in our dream of creating a globally competitive SaaS industry but also a fully buoyant ‘Digital India’.