Master Direction on Prepaid Payment Instruments (PPIs), 2021

Akansha Gupta

25 Feb, 2022

The Reserve Bank of India (RBI) has released Master Directions on Prepaid Payment Instruments (PPIs), 2021, by a notification dated August 27, 2021. All Prepaid Payment Instrument (PPI) Issuers and System Participants are subject to the MD-PPIs requirements. Banks and non-bank organizations often issue PPIs after receiving RBI approval/authorization under the PSS Act, 2007.

The aim of this Master Direction:-

1. To provide a mechanism for the authorization, regulation, and oversight of companies that issue and operate PPIs in the state;
2. To promote competition and innovation in this segment in a responsible way, taking into consideration system and transaction security, as well as consumer protection and convenience;
3. To ensure that Prepaid Payment Instrument (PPIs) are harmonised and interoperable.

PPIs are issued in the nation by banks and non-bank companies after getting the appropriate approval/authorization from the RBI under the Payment and Settlement Systems Act, 2007 (PSS Act). The current instructions issued on the subject so far have been integrated and are consolidated in these Master Directions, taking into account the changes in the sector and the progress made by Prepaid Payment Instrument (PPI) issuers.

The Master Direction establishes the eligibility requirements and terms of service for Payment System Operators (PSOs) who issue and operate PPIs in the nation.

Furthermore, in 2021, the Master Directions on Prepaid Payment Instruments (PPIs) were released, which included a new categorization of the instruments as well as a framework for PPI entity authorization, regulation, and surveillance. Going forward, without prior RBI approval/authorization, no company may set up and run payment systems for PPIs in the future.

PPIs that require RBI clearance before issuance are now categorised as follows:-

• Small PPIs (Minimum-detail PPI)
  • Banks and non-banks issue PPIs after getting the bare minimum of information of the Prepaid Payment Instrument holder (mobile number verified with OTP and self-declaration of name and unique identification number of Officially Valid Document).
• For the sole purpose of making purchases of goods & services
• Fund transfers and cash withdrawals are prohibited.
• Used at a set of identified merchant locations/ establishments that have a direct line of communication with the issuer
• Reloadable issued only in electronic form (amount loaded in a PPI during a month must not exceed Rs. 10,000/- and throughout the financial year shall not exceed Rs. 1,20,000/-).
• The total amount owing on such PPIs at any given moment cannot exceed Rs. 10,000/-.
• In any one month, the total amount debited from PPIs cannot exceed Rs. 10,000/-.
• These Prepaid Payment Instruments must be changed into Full – KYC PPIs within 30 days of the date of issue, otherwise no additional credit will be permitted in the PPI.

Full – KYC Prepaid Payment Instrument:-

• Issued by banks and non-banks after completing the PPI holder’s Know Your Customer (KYC) process.
• Purchasing products and services, transferring funds, and withdrawing cash
• At no time can the outstanding amount surpass Rs. 2,00,000/-.
• The monthly fund transfer limit would be Rs. 2,00,000/- for pre-registered beneficiaries and Rs. 10,000/- for all other situations.

Interoperability of Prepaid Payment Instrument

Additionally, to the aforementioned requirements, PPI issuers must develop a board-approved policy for PPI interoperability. Interoperability refers to a PPI’s compatibilities to work with other payment systems on a technical level. Interoperability will also be required on the acceptance side too.

Requirements

• For PPIs in wallet formats, interoperability will be enabled via UPI.
• PPIs in the form of cards (physical or virtual) must be connected with approved card networks.

In addition, the RBI exempted mass transit systems from Interoperability, whereas gifts (both banks and non-banks) have until March 31, 2022 to offer Interoperability.

Gift Prepaid Payment Instruments

• The maximum value of these PPIs is Rs 10,000/-, and they are not reloadable.
• With the exception of transfers to the “source account,” no cash-outs or fund transfers are authorised.

PPIs for Mass Transit Systems (PPI-MTS)

• They must be issued by Mass Transit System Operators after they have obtained approval under the PSS Act, 2007.
• These Prepaid Payment Instruments (PPIs) are reloadable, with a maximum outstanding value of Rs. 3,000/- at any given moment.

Banks and non-banks must satisfy certain parameters in order to issue Prepaid Payment Instrument (PPIs).

• Under the Payment and Settlement Systems Act, 2007^[1], banks must seek RBI clearance.
• They must additionally apply to the Department of Payment and Settlement Systems (DPSS), Central Office (CO), RBI, Mumbai, within 30 days after receiving such permission, accompanied with a “NOC” from their regulatory department.

Non-banks are subject to additional restrictions.

• Any Corporation incorporated and registered in India under the Companies Act, 1956/2013.
• FDI, FPI, and FII in non-bank companies.
• The PPI issuing activity must be documented in the MOA.
• A minimum of Rs. 5 crores in positive net worth as on the most recent audited balance sheet submitted with the application, as well as a certificate from a CA.
• They must have a net worth of at least Rs. 15 crore by the end of the third financial year after getting final approval, which must be maintained at all times.

Issuance, loading, and reloading of PPIs issued by both banks and non-banks.

• RBI-authorized banks and non-banks can issue both reloadable and non-reloadable PPIs.
• Along with the PPI brand name, the name of the firm that is authorised to issue and operate PPIs should be shown, and the RBI should be notified.
• Cash, debit to a bank account, credit and debit cards, PPIs, and other payment instruments (issued by regulated companies in India) are all acceptable methods of loading and reloading PPIs and will be in INR only.
• Cash loading to PPIs is restricted to Rs. 50,000/- per month, subject to the PPI’s overall limitation.
• PPIs may be issued in the form of cards, wallets, or any other form that allows access to the PPI and usage of the funds contained within, rather than in the form of paper vouchers.
• Funds from other PPI issuer operations (e.g., bank/s BC, payment aggregation middleman, payment gateway, etc.) must not be mixed.

Finally, Prepaid Payment Instrument (PPI) issuers must establish a comprehensive/ formal, publicly published customer grievance Redressal framework, which includes assigning a nodal officer to address customer complaints, or grievances, as well as an escalation matrix and complaint resolution turnaround times. Customers can get a Redressal for grievances with the Banking Ombudsman Scheme and the Ombudsman Scheme for Digital Transactions in the case of PPIs issued by banks and non-banks.

Read our article:How to obtain a Prepaid Wallet License in India?