Interoperability of PPIs: RBI mandates pre-paid cards, wallets to be made interoperable

Ashish M. Shaji

25 Feb, 2022

The Reserve Bank of India mandated all prepaid payment instruments or wallets that are KYC compliant to be made interoperable by March 2022. The Reserve bank issued a notification on 19^th May 2021. In this article, we will discuss the details of the notification mandating interoperability of PPIs.

Interoperability of PPIs: Background

The RBI said in its notification that pre-paid instrument issuers would give the holders of full KYC PPIs interoperability through card networks authorized. Payment companies should enable PPI interoperability by 2022.

In April, the RBI governor, Shaktikanta Das had announced that the limit for full-KYC PPI accounts shall be raised from 1 lakh rupees to 2 lakh rupees. It means that a PPI card or PPI e-wallet user may double the amount they store on the payment instrument. Considering the fact that the migration towards interoperability hasn’t been significant, now interoperability has been made mandatory for fully KYC compliant PPIs for all payment acceptance infrastructure.

What do you mean by Prepaid Payment Instruments?

Prepaid Payment Instruments are preloaded cards or digital wallets. For instance, Paytm, Phonepe, MobiKwik etc. are payment apps that permit customers to add funds into the app in order to spend the funds through the app itself. These are PPI e-wallets. Traditionally payment apps possess PPI licenses, but with the coming up of UPI^[1] (Unified Payment Interface), the instances of loading the app with money has reduced significantly since UPI is a seamless bank to bank payment system and based on which these apps provide a great customer experience.

What is Interoperability of PPIs?

Interoperability means that regardless of who issues the PPI card or the e-wallet, customers can use their PPI card or e-wallet at any payment acceptance point. Therefore it means under interoperability, a PPI holder can swipe their card at any merchant outlet having a card swiping machine. Likewise, while UPI is interoperable, PPI e-wallets are not yet interoperable. Through interoperability, a customer would be able to transfer their Paytm wallet funds to a Phonepe or a Mobikwik wallet if they wish.

Why has RBI mandated for interoperability of PPIs?

With a view to promote utilization of payment instruments such as cards and wallets and the given the constraint of inadequate payment acceptance infrastructure such as Point of Sale devices, ATMs, QR codes etc, the RBI has been stressing for interoperability amongst the issuing and acquiring entities alike.

It may be noted that the RBI, in its notification, has exempted PPIs for mass transit systems and gift PPIs from complying with its instruction. However, gift PPI issuers may offer interoperability if they wish.

What are the perks of the new RBI mandate?

The new RBI mandate comes with the following perks:

• Merchants would be able to accept more wallets

Currently, mobile wallet providers are required to build merchant networks to get customers to use their wallets, but with the new RBI mandate, providers don’t have to worry about it as all UPI accepting merchants would be able to accept their wallets. This can enlarge acceptance and pave the way for enhanced volume and revenue.

• Greater digital payment adoption and usage

It may also lead to greater digital payment adoption and usage. It will further give the payment instrument great utility and value. It may add to India’s growing mobile payment users.

Further details of the notification

The RBI notification also laid down the rules of allowing cash withdrawal from fully KYC PPIs issued by non-banks. There would be a maximum limit of 2k rupees per transaction with an overall limit of 10k rupees per month per PPI. All cash withdrawal transactions using a card or wallet will be authenticated by an additional factor of authentication or PIN. Issuers providing withdrawals would put in place customer redressal mechanisms. They shall also put in place a suitable cooling-off period for cash withdrawals on opening the PPI or loading or reloading funds into the PPI in order to reduce the risk of fraudulent use.

The limit of cash withdrawal from Points of sale terminals with debit cards and open system prepaid cards issued from banks has also been rationalised to 2000 rupees per transaction within an overall monthly limit of 10000 rupees across all locations. Prior to this, withdrawals through this mode was capped at 1000 rupees for tier I and II centres and 2000 rupees in case of other centres.

Conclusion

Various industry players earlier lauded these moves stating that interoperability of PPIs or wallets may help wallets to get back the space that they previously lost to banks and other players with the advent of UPI and the new KYC requirements. There could also be a possibility that non-banks would be able to effectively compete for micro-savings from the underbanked segments

Read our article: RBI doubles deposit limit of Payments Bank