Mastering Subscription Renewals in India

If you are reading this then one of these two things happened:

1. You have noticed how most of your Indian customers who sign up for your service (and are often happy users) do not continue to pay after the first month. Your churn in India is much higher than it is in any other country!
2. An Indian customers has contacted support asking why they can't access your product anymore even though they have a subscription

Why does this happen? How come very few (if any) of your Indian customers who sign up for a subscription keep it for more than a month?

The answer lies in local Indian regulations preventing automatic subscription renewals

But here's some good news: I'll explain why this happens and, more importantly, how you can mitigate this situation and start lowering churn and generating more revenue from that giant market.

Understanding the Indian Regulatory Landscape

In layman's terms, the Reserve Bank of India (RBI) introduced new auto-debit guidelines on October 1, 2021. These guidelines were designed to regulate recurring payments made through credit cards, debit cards, and prepaid instruments. We'll focus on the subscription renewal related guidelines for now:

Explicit Customer Approval Required: For any recurring transaction debited automatically using a credit card or debit card, customers now need to give explicit approval in advance. This is done through an Additional Factor of Authentication (AFA), which adds an extra layer of security.

Impact on Cross-Border Transactions: These guidelines affect both domestic and international recurring transaction payments. Any auto-debit mandate on credit or debit cards, whether domestic or international, requires AFA.

What does this mean in practice? For every automatic renewal of your subscription, Indian customers have to explicitly approve the charge, unlike most other customers where the auto-renewal goes through without any action taken by the customer. These guidelines do not just apply to Indian business, they are enforced across all card issuing banks in India and so even US companies will be forced to comply.

Another two guidelines worth mentioning though it doesn't apply to the business charging the card is the pre-debit notification and transaction limit.

Pre-Debit Notification: Banks are required to send a notification to customers 24 hours before the payment due date. This alert gives customers a heads-up about the upcoming charge.

This pre-debit notification increases the odds of your customer canceling as they are made aware of the renewal and will have another moment to think about whether they want to keep the subscription or not.

Transactions Above INR 15,000: For transactions that exceed INR 15,000, an additional authentication step is necessary. Banks send a one-time password (OTP) to the customer, and the transaction only goes through after the customer enters this OTP.

The last one is important if you are charging ~$180 USD or more as it requires an extra authentication step to complete, similar to 3D Secure.

Deep Dive into Solutions

So knowing these rules, how do we make sure that we do not lose all our Indian customers to churn?

1. Embrace Local Payment Methods

There are plenty of local payment methods that have moved away from cards – Unified Payments Interface (UPI) and e-wallets like Paytm or Google Pay are big hits in India. Then, work with your payment gateway provider to integrate these options into your platform.

These local payment methods also need to comply with the RBI's auto-debit guidelines but are usually much better at handling the related processes than 'Western' payment processors.

2. Opting for Stripe Invoicing

If Stripe is your payment processor, you’ll want to switch your recurring payments to an invoice-based system. This means that instead of automatic charges, your customers get an invoice they can pay manually. This means it's no longer a "hands-off payment" and with the customer doing it manually, that counts as explicit approval.

When switching over to invoice-based billing, make sure you also set up automated reminders for these. Remind your customers a few days before their subscription is due, on the due date, and if they miss the payment. Also make sure that you handle that subscription state elegantly in your app by limiting access for customers with overdue payments.

3. Introducing Prepaid Subscription Plans

A way to 'circumvent' the problem is by switching away from automatic billing to a pre-paid plan that does not have recurring billing. Offer users to pay for a set amount of time or usage of your app upfront instead of offering a subscription.

Although this introduces some additional complexity in your revenue reporting if you are mostly subscription based now (E.g. how do you report MRR/ARR if these payments are not recurring?) it can still be worth it if India is a significant market for your product.

4. Promoting Annual Subscriptions

Finally, If you do not want to switch away from recurring billing. You could simply disable monthly plans for Indian users or heavily incentivize long-term commitments. The subscription renewal will still fail at the end of the year, but that is 1/12th less often than if you were billing monthly.

Consider offering attractive yearly plans or offering 3 or 6 month plans.

Handling Overdue Payments

Given the high percentage of payment failures on renewal in India, handling this gracefully in your app is very important to provide a fair user experience while balancing it with growing revenue and reducing churn.

• Restrict Access Strategically: If a payment is missed, limit access to premium features, but keep basic access open. This way, your customers don’t feel completely cut off.
• User-Friendly Payment Options: Make the process of clearing overdue payments super straightforward.
• Engaging Communication: Keep your communication warm and understanding. Remember, the goal is to bring them back, not push them away.

Conclusion

And that's pretty much the playbook to tackle subscription renewals in India! It's all about understanding what your customers need and providing them with the right options.

By tailoring your approach to fit the unique Indian market, you'll not only see fewer failed transactions but also build a stronger, more loyal customer base.