If an individual is planning to start a Prepaid Payment Instrument (PPI), obtaining Prepaid Wal...
PPI (Pre-paid Payment Instruments) is one of the payment instruments that enable the transactions like buying of goods & services, comprising of funds transfer, in contradiction of the value stored on such instruments. The value stored on PPIs signifies the value paid by the holders by cash through a bank account etc. There are a huge variety of PPIs comprising of smart cards, magnetic stripe cards, internet accounts, internet wallets or digital wallets, mobile accounts, mobile wallets, paper vouchers & any such instrument which can be used to access the pre-paid amount. PPI sector is regulated by the RBI and as per the RBI regulations, there are three types of PPIs:
Closed system payment instruments
Semi-closed system payment instruments
Open system payment instruments (multipurpose cards)
PPI’s are the payment instruments that enable buying of goods & services, comprising of 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 & such instruments which shall be selected as internet accounts, internet wallets, mobile accounts, mobile wallets, paper vouchers, smart cards, magnetic stripe cards, & any such instrument, which can be used to access the pre-paid amount (collectively called Prepaid Payment Instruments hereafter).
The following entities have been allowed to issue prepaid payment instruments under the Guidelines:
However, banks permitted by the RBI to provide mobile banking facilities will be allowed to issue mobile-based prepaid payment facilities (mobile wallets).
The RBI Guidelines lays down the definition of the PPI. Instruments that qualify would be –
The issue of reloadable PPI up to ₹ 10,000 per month and the outstanding of such instrument must never go beyond ₹ 10,000 by accepting basic details of the holder.
Issue non-reloadable PPI value of which must be within ₹ 10,000 to ₹ 50,000 by accepting official valid documents of the holder.
The issue of reloadable PPI up to ₹ 1 lakh by complying with RBI know your customer (KYC) norms.
Amount of money loaded into a PPI can be used for the purposes as directed by the RBI. The list of transaction that can be executed over a PPI are listed below:
Receipts of sale proceeds
Reload of the PPI
Receipts of failed/ canceled transactions
Payments to merchants/ service providers
Transfer from one PPI to another
Statutory payments, etc.
The amount received by the PPI issuers must be parked & disclosed in their books as permitted by the RBI-
The amount must be held by the entity in an escrow account with a scheduled commercial bank.
In case of a shift of the account from one bank to another, prior permission must be acquired from the RBI and the same must not affect the payment and settlement process.
The balance of the account must at all times be equal to outstanding values of the PPI issued by the entity.
The amount must only be used to make payments as per the orders received from the PPI holder.
All issued PPIs must a minimum validity of six months and maximum of three years from the date of its issuance. In case of non-reloadable PPIs, the outstanding amount at the end of its term would be forfeited if the same is not transferred by the holder to a similar new instrument acquired by the holder. In open-ended PPIs, cash withdrawal is permitted up to ₹ 1,000 per day.
These are payment instruments issued by a person/entity for facilitating the purchase of goods and services from him/it. These instruments do not permit cash withdrawal or redemption. Being very simple type, these instruments cannot be used for payments and settlement for third party services and hence these PPI are not classified as payment systems. RBI approval is not obligatory for issuing the closed system payment instruments. In the real world, closed system payment instruments include bonus point like wallets issued by web portals for online purchases /shopping for their customers. Mobile prepaid cards also come under this category.
However, such payment instruments which can be used for procurement of goods & services, comprising financial services at a group of clearly identified merchant locations/ establishments. These PPIs can be used for third-party purchase settlements and the specific contract between the issuer and the merchant is needed for the use of these PPIs. The semi-closed system payment instruments can’t be used for cash drawing or reclamation by the holder. For higher payments, KYC norms are required. Illustration of semi-closed system payments is PayTM wallets.
These are payment instruments can be used for the purchase of goods and services, including financial services like funds transfer at any card accepting merchant locations (point of sale terminals) and also permit cash withdrawal at ATMs / BCs. An important feature of these PPIs that they can be used for limited cash transfer and cash withdrawals. During the time of demonetization, the RBI raised cash withdrawal limit of these PPIs to ₹ 20000. These PPIs can be issued only by banks. Illustration for open system payment instrument is Vodafone mPesa.
Only banks can issue open system payment instruments. On the other hand, Closed and Semi-Closed System Instruments can be issued by NBFC and other entities who avails a license from the RBI.