iSPIRT works to transform India into a hub for new generation software products, by addressing crucial government policy, creating market catalysts and grow the maturity of product entrepreneurs. Welcome to the Official Insights!
‘SaaS’ can drive the future of Indian IT Industry both in International trade as well as domestic front. With changing dynamics in Software sector globally, ‘SaaS’ can help India remain a Software power house. iSPIRT has been following ‘SaaS’ industry growth from this perspective. The realization that there are several policy hurdles for ‘SaaS’ industry was very early conceived at iSPIRT.
Accordingly, iSPIRT made several attempts to ease the problems of ‘SaaS’ industry. One of the belief at iSPIRT is that ‘SaaS’ is basically about ‘product’ first and then a ‘service’. With this belief iSPIRT has been continuously taking up the case of clear distinction of Software product within the larger framework of Digital economy consisting of “Digital goods” and “Digital services”.
In order to stop the exodus of Startups, which constitutes a large number of ‘SaaS’ based startups, a Stay-in-India checklist was taken up with Department of Industrial Policy and Promotion (DIPP). There have been a number of items cleared by DIPP such as Angle Tax, Fair market Value, ESOPs provisions made better, Company incorporation rules simplified, Domestic venture debt made easy, Convertible notes, FVCI norms relaxed and External Commercial borrowing (ECB) eased by RBI etc. Some of these announcements under the shadow of StartupIndia policy. However, iSPIRT has been continuously pushing policy makers to relax all these norms for all start-ups. iSPIRT covered most of these announcements in PolicyHacks blogs given here.
A major problem area for ‘SaaS’ startups is also the payment gateway systems. ‘SaaS’ industry has to resort to either relocate to a foreign geography, or open a subsidiary abroad or seek expensive international payment gateway services. On domestic front the ‘SaaS’ industry suffers from recurring billing problems. Both these issues were taken up in PolicyHacks sessions given here. iSPIRT believes Indian ‘SaaS’ companies should be able to carry of out international trade of digital goods without moving out of India seamlessly and using Indian payment Gateway systems.
The belief at iSPIRT that a futuristic industrial policy at Ministry of Electronics and IT (MeitY) is required to meet the challenge of Indian IT industry was followed up with a National Policy on Software Product (NPSP) at MeitY. Being the administrative ministry for this Industry MeitY has in past played highly catalytic role in making of IT industry that India is proud today. A similar renewed thrust is required to push the Indian Software Product Industry.
One of the main emphasis in NPSP draft being followed up at MeitY is the ‘‘SaaS’’ segment. iSPIRT team is continuously engaging with the MeitY officials to educate them and influence on the importance and the need to focus on ‘SaaS’ segment.
There is recognition in Government system for need of this strategic shift. Honourable Prime Minister’s speech at Germany (Link here see 12th Minutes segment) is the evident of this realization of need for change that can lead to companies like Google to be born out of India.
iSPIRT is striving hard in this direction to see the ‘SaaS’ as the next big leap by India.
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: Itis 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’.
This is the story of how we spiced up our marketing campaign, brought a lot of smiles and drew attention during the recent SaaStr Annual event.
Background
The objective is to create the largest Enterprise Software company from India. This can be accomplished if top entrepreneurs can learn each other and then pass the learning to others.
When doing your job right involves going unnoticed, how do people find out about your product? Managing subscriptions and recurring billing for Software as a Service (SaaS) companies places us in this category. This is the story of our latest efforts to get the word out about Chargebee.
“This is a revolution, there will be a Before Chargebee (B.C.) and an After Disruption (A.D.), in the industry!”
“O.K. but how do we get people’s attention?”
“We play on the B.C. and A.D. theme; this is year 0 for subscription management.”
“O.K. but HOW do we get people’s attention?”
“Let’s have people dressed as evangelists hand-out flyers.”
“Why not sexy nuns?”
“Hmm, na, company image? We’re a billing company, we must stay somewhat serious. ”
“OK, regular nuns? Nuns handing out the 10 Commandments of SaaS?”
“Might work! But how do we go about it?”
Guerilla Marketing Nuns
SaaStr annual would be full of attendees from our target audience; it was approaching fast. We had just a couple weeks to write out the 10 Commandments of SaaS, get our design team to run its magic, print the mini tablets, and find the nuns!
On opening day, we were struck by divine luck, the SaaStr Annual was being held across the street from a Cathedral!! It was meant to be.
Our plan was to distribute the “10 Commandments of SaaS” as flyers. We included the hashtag #SaaS10 hoping this would become a little social media event. As it turned out, we were violating the event regulations by distributing marketing materials without sponsoring the event. We were gently warned by SaaStr folks to keep it out of the venue. In all fairness, they were right and we moved to corner of street to distribute.
But we then ran into another problem; the building’s agreement with the city forbids distribution of materials in front of the venue. We were however, told the sister could stand in the area in front of the conference entrance if we weren’t distributing anything. We had to regroup.
“Let’s print this tablet size?”
“You mean like the actual 10 Commandments?”
On the second day, the sisters were holding tablet sized commandments. And the result was surprising!
When the sisters had been trying to distribute flyers, people thought they were authentic nuns protesting the conference.
By having them hold big tablet sized SaaS Commandments, people realized this was just good fun, and started asking the nuns to take pictures with them. The social media fall-out was much stronger than the first day!
We brought a lot of smiles. More pictures and even more Tweets.
Plus we landed a 90 second interview. 🙂
Prior to the event we were a bit worried that doing something edgy to spread the word about us might affect our corporate image.
As it turns out, this had a hugely positive impact and we had a lot of fun doing it. Your smiles and pictures made us so happy! Thank You!
Here is a quick run-down of the operation :
$400 number of dollars spent for costume, printing.
A few hours of planning, design & execution.
Finding people for the sister act
5000 SaaStr attendees.
3-4 hours of exposure when most folks are walking in.
2000 views. 100 likes. 25 retweets.
And the 10 Commandments :
Be My Valentine
Feeling the buzz from this event’s success, we had 24 hours to complete another marketing tactic if we were to be in time for Valentine’s Day.
Earlier in the month, we had decided we wanted to occupy mind-space. We decided to send a Valentine’s Day card (yes an actual paper card) to 200 start-up C.E.O.s, to grab their attention, and hopefully make them smile.
We created this :
We spent the better part of the afternoon stuffing envelopes, finding mailing addresses, licking stamps, and placing a heart sticker on the back so these wouldn’t be considered “junk mail”.
We managed to ship them all out in time….the only problem is that we have no way to trace the effectiveness of this method. No “open, click-through” stats for snail-mail.
Our next step is to reach out to the 200 people via an email about this blog post to see what the response is. Fingers crossed!
We’re happy to share our tactics but remember the 10th Commandment of SaaS : “Thou shalt not covet thy neighbor’s growth hacks.” 😉
If you think managing recurring revenue, subscriptions and invoicing is a pain in the SaaS, let us help you
