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Pre-paid Payment Instruments (PPIs)

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Pre-paid Payment Instruments (PPIs) are defined in the RBI Guidelines issued under the Payment and Settlements Systems Act, 2005  as payment instruments that facilitate purchase of goods and services, including funds transfer, against the value stored on such instruments. The value stored on such instruments represents the value paid for by the holders by cash, by debit to a bank account, or by credit card. The pre-paid instruments can be issued as smart cards, magnetic stripe cards, internet accounts, internet wallets, mobile accounts, mobile wallets, paper vouchers and any such instrument which can be used to access the pre-paid amount.

The maximum value of any pre-paid payment instrument (where specific limits have not been prescribed) cannot exceed Rs 50,000/ (as on October 2015) and they have a minimum validity period of six months from the date of activation/issuance to the holder.

PPIs can be reloadable or non-reloadable.  Banks are permitted to issue and reload such payment instruments at their branches and ATMs against payment by cash/debit to bank account/credit card and through their business correspondents (BCs). In the case of non-reloadable PPIs, the outstanding amount in it can be transferred to a new similar PPI of the same issuer, upon expiry.

PPIs are one component of the Payment System. In fact, they constitute the last end of the spectrum of payment instruments existing in India at the moment. The Payment and Settlement Systems Act, 2007 (PSS Act, 2007) which came into force with effect from 12 August 2008, provides for the regulation and supervision of PPIs in India.  Reserve Bank of India (RBI) is the regulatory authority for this purpose.

The confidence of the public and merchant establishments on PPIs depends on certainty and timeliness of settlement of claims arising from use of such instruments.

Classification of Payment Instruments in India

RBI has broadly classified the PPIs into three categories

Commonly found PPIs in India

Some of the commonly found PPIs in India are:

RBI has decided to rationalise the operational guidelines for PPIs with a view to encouraging competition and innovation, and strengthening safety and security of operations, besides improving customer grievance redressal mechanisms. It is proposed to bring in inter-operability into usage of PPIs. Inter-operability amongst KYC compliant PPIs is proposed to be implemented within six months of the date of issuance of the revised Master Directions, i.e., by October 11, 2017.

Who can issue prepaid payment instruments in India?

Only those companies incorporated in India and have a minimum paid-up capital of Rs. 5 crore and minimum positive net worth of Rs. 1 crore at all the times are permitted to issue PPIs in India.

Banks who comply with the eligibility criteria are permitted to issue all categories of PPIs. However, only those banks which have been permitted to provide Mobile Banking Transactions by the Reserve Bank of India are permitted to launch mobile based pre-paid payment instruments (mobile wallets & mobile accounts). Non-Banking Financial Companies (NBFCs) and other persons are permitted to issue only closed and semi-closed system payment instruments, including mobile phone based pre-paid payment instruments. Non-bank persons issuing payment instruments are required to maintain their outstanding balance in an escrow account with any one of the scheduled commercial banks.

Persons authorized under Foreign Exchange Management Act (FEMA) can issue foreign exchange pre-paid payment instruments and where such persons issue such instruments as participants of payment systems authorised by the Reserve Bank of India, they are exempt from the purview of strict guidelines related to pre-paid instruments. However, the use of such payment instruments are limited to permissible current account transactions and subject to the prescribed limits under the Foreign Exchange Management (Current Account Transactions) Rules, 2000. Otherwise, use of pre-paid payment instruments for cross border transactions are not permitted.

Persons issuing pre-paid payment instruments have to maintain a log of all the transactions undertaken using these instruments. This data is made available for scrutiny by the Reserve Bank or any other agency / agencies as directed by RBI. They also need to file Suspicious Transaction Report (STR) to Financial Intelligence Unit – India (FIU-IND).


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