RBI Notification

Online Payments through PPIs in India

The system of PPIs in India has been around for a long time, dating back to the introduction of calling cards such as Virtual Calling Cards (VCCs), Voice Over IP Cards (VOIP), Long Distance Calling Cards, and prepaid mobile recharge cards. The majority of them were from the telecom business to give clients access to telecom services according to their affordability, i.e., in different denominations, as well as to keep them in control of their budget. Also, corporate gift cards and meal coupons have long been used for different tax-related perks and incentives.

We’re on our way to a cashless economy based on digital payments. Prepaid payment instruments have played an important part in this. With India surpassing many millions of real-time transactions and maintaining its lead, the growth of PPIs as a significant component in the banking and fintech industry is undeniable.

What are PPIs?

According to the guidelines given under the Payment and Settlement Act of 2007¹, RBI defined PPIs in India as the instruments of online payment that assist in the purchase of goods and services, along with the transfer of money, financial services, and remittances, against the value of money stored within or on the instrument.

The amount contained in the instrument is the value that has already been paid for by the PPI holder or the instrument using any method, such as cash, debit from a bank account, credit card, or even through other PPIs in India. Payment wallets, smart cards, magnetic chips, coupons, mobile wallets, and more forms of PPI exist today. A PPI is an instrument that may be used to obtain a prepaid payment.

These instruments are often pre-loaded cards that sometimes come with a pre-determined purpose of payment.

Some key features of Prepaid Payment Instruments are as follows:

Diversity of PPI Options: The end-user can receive prepaid payment instruments in a variety of formats. It might be a digital wallet, a smart card, a real magnetic strip card, or even a virtual one. This allows the PPI provider to select the best option for the consumer while also allowing the user to go cash-free.

Ease of Loading Money: One of the benefits of a PPI is the simplicity with which money can be added to it. A basic bank transfer (RTGS, NEFT, IMPS) or the most recent UPI will suffice. The issuer has the option of loading the PPI themselves or allowing the user to do so.

The ability for Online/Offline Purchases: A PPI may be used to make both online and offline transactions. A user can use a digital wallet such as PAYTM to pay at a local grocery shop. Similarly, a company can use a virtual card linked to a prepaid wallet or UPI to shop for their preferred tools online.

Safety from Theft: In the event of theft, the instrument provides greater security for the user. Unlike cash, users may stop the card if it goes missing or may report a problem to the issuer at any moment. Because certain preloaded co-branded cards are not linked to any bank accounts, the possibility of theft or misplacement is eliminated.

Three types of PPIs in India

PPIs in the country can be granted under three processes, according to the RBI. These are their names:

1. Closed system PPIs

The close system is one in which the PPI granted is only valid when used against purchases made from the organization that issued it in the first place. When a person attempts to purchase things or services from a different supplier, the usage of such a PPI becomes invalid. This approach also does not permit cash withdrawals against the amount stored in the PPI. Because the RBI has not categorized this PPI system as a payment system, the issue of such PPIs does not require prior clearance from the RBI. Furthermore, these instruments may not be utilized to make payments or settle third-party services.

Paper vouchers, gift cards, and coupons are some forms of closed system PPI; it would also comprise those smart cards that can only be used in the facilities that supply them, such as metro travel cards and chips.

2. Semi-closed system PPIs

PPIs issued under the semi-closed system, unlike those issued under the closed system, can be used at a variety of institutions but not all of them. PPIs can only be issued by banking institutions or non-banking institutions that have been approved by the RBI under this framework. Without the RBI’s prior permission or authorization, these PPIs cannot be issued. They can be used for purchases, remittance services, and other transactions in a set of explicitly designated merchants, either by geography or by individual businesses, that have signed special arrangements with the PPI issuer to accept PPIs as payment.

A contract like this can be made through a payment aggregator or a payment gateway, and it doesn’t have to be a direct one between the issuer and the organization that accepts PPI as a payment option. PPIs issued under the semi-closed system, like those issued under the closed system, are not permitted to assist cash withdrawals. This is applicable whether or not the PPI was issued by a banking institution.

A few examples of semi-closed system PPIs are HDFC Bank’s PayZapp and State Bank of India’s YONO which are approved by the central bank. In addition, non-bank PPIs like Paytm and Google Pay fall under this category and are authorized by RBI for the purchase of goods and services, making payments of financial services, other payments, transfer of funds, remittance facilities, etc.

3. Open system PPIs

These are the most commonly used PPIs. PPIs of this category can only be granted by financial institutions that have been authorized by the RBI under this framework. These instruments can be used for purchases, remittances, and cash withdrawals, among other things. Debit and credit cards are examples of PPIs issued under this method.

These PPIs issued by banks (and approved by the central bank) can be utilized to acquire goods and services from any merchant, including financial services, remittance facilities, and so on. Moreover, these PPIs allow for cash withdrawals from ATMs, point-of-sale terminals, and transactions with business correspondents.

Semi-closed system PPIs

Semi-closed system PPIs are further classified into three types. Only a specific amount of money may be placed into the instrument, depending on the kind of PPI. They are as follows:

1. Minimum detail PPI

This sort of PPI obtains only the bare minimum of information about the PPI holder. The PPI issuer gathers just the holder’s name and number and no further data is taken such as residence, pan number, Aadhar number, or bank account details, etc. In this scenario, the maximum amount that may be placed on the PPI is rupees 10,000.

2. Loading only from the bank account

The maximum amount of money that may be loaded onto the PPI is rupees 10,000 in cases where the PPI can only be loaded through the bank account and not through any other means such as cash, etc.

3. Full KYC PPI

When the PPI holder’s full KYC is received and registered by the PPI issuer, the maximum amount that may be put onto the instrument increases to rupees 1 lakh. However, it has been recently notified by RBI that the amount outstanding on full KYC PPIs shall not exceed rupees 2,00,000 at any point in time. Moreover, there are now no limits prescribed for total credits or debits during a particular month.

Who can issue PPIs in India?

Non-banking organizations, such as corporations, must meet the following standards in order to be qualified to issue PPIs: The corporation must be registered in India, the minimum paid-up capital must be greater than rupees 5 crores, and the minimum positive net worth must be rupees 1 crore at all times.

When it comes to banking institutions, any banks that meet the RBI’s qualifying criteria are permitted to issue PPIs. However, when it comes to delivering mobile banking transactions, only banks that have been certified by the RBI to do so are permitted to operate mobile-based PPIs.

Non-banking financial institutions and companies are only permitted to issue PPIs under the semi-closed system or closed system. This includes mobile-based PPIs also. The sole requirement for non-banking financial companies (NBFCs) to be able to issue PPIs is that they should maintain an escrow account with any scheduled commercial bank in the nation.

Protection to PPI holders

To safeguard the PPI holders and acceptors from all types of exploitation and fraud, the RBI requires the issuer of the PPI to declare all of the terms and conditions implicated in the use of the PPI in simple and clear language. The issuer of the PPI must pay special attention to this disclosure to bring the following terms to the customer’s attention.

• All fees and costs associated with the use of the PPI
• Customer services contact information, such as phone number, email address, and URL of the website
• The instrument’s validity duration, as well as the terms and conditions of its expiration
• The terms of depreciation of the instrument’s value, if any, once the validity period has expired.

How can prepaid instruments help a business?

Prepaid Payment Instruments come with a variety of benefits for a business enterprise that can help them simplify their business operations, enhance customer experience, add additional streams of revenue, and allow them to scale and grow.

Businesses that accept payments and transfers using prepaid payment instruments will benefit from enhanced customer acquisition, retention, and loyalty, as well as greater lifetime value of clients and long-term profitability.

Takeaway

Prepaid Payment Instruments are e-wallets and virtual cards that let users use an underlying prepaid account to purchase items and services, remit money, and transfer cash online. Customers can add or reload Indian Rupees (INR) to their prepaid account using bank accounts, credit/debit cards, or other payment methods.

Read our article:Master Direction on Prepaid Payment Instruments (PPIs), 2021

1. https://www.indiacode.nic.in/handle/123456789/2082?sam_handle=123456789/1362