UPI is the latest innovation in Digital payment world. UPI refer to electronic consumer transac...
PPI (prepaid payment instruments) is an online platform through which we can facilitate the purchase of goods and services from the Value stored on the instruments. Nowadays, there are many such Instruments which facilities the prepaid paid Instrument such as smart cards, internet accounts, digital wallets, Metro card paytm.
RBI has classified the PPI under four Categories:
(i) Closed system payment instruments
(ii) Semi-closed system payment instruments and
(iii) Semi-opened System payment Instrument
(iv) Open system payment instruments (multipurpose cards).
Closed System Payment Instruments: These are prepaid payment instruments which allow the person/entity for facilitating the purchase of goods and services from the person who has availed the PPI Service. This instrument does not permit cash withdrawal or redemption. If the money is stored in the wallet so it can only be used to purchase from the particular Site.
It cannot be used for payment and settlement for any other party service, so they are not considered as the Payment system and RBI approval is not required in this case. It includes the bonus points walled issued by the web portal for the purchase for their customers. Like Amazon issue Bonus cared which can be used to purchase from their web portal only and it cannot be used anywhere else.
Semi-Closed System Payment Instruments: These instruments can be used in third Party Purchase and on the specific contracts between the Parties which are in contract with the issuer to accept the payment instrument. The main distinction between the open and semi-closed system payments are it can be sued for withdrawal of cash or can be redeemed. For Example Paytm
These are prepaid payment instruments which can be used for the purchase of goods and services at any merchant/locations which accepts cards (POS terminals). These do not permit cash withdrawal or redemption.
Open payment Instrument: These instruments can be used for the purchase of goods and services, even financial services from any merchant. As it can be used for a multipurpose it is considered as a Payment gateway RBI Approval is required in this case.
In this case, cash can be withdrawn from the bank, ATM card. Example: Vodafone m pesa.
Reserve Bank of India is the regulatory authority for PPI’s which set guidelines for Issue of Issuance of PPI’s in India.
Reserve Bank of India has provided with the capital adequacy requirement to start the business of PPI’s.
Every business has its own risk and benefits; the same is with the PPI business, although it is a boon to the society as it provides the society with ease of transaction along with that it is also associated with some risk and risk is high in this case as it is associated with the technology.
All the information is stored on a central server who is solely responsible for keeping the information safe and preventing its access by unauthorized personnel to execute a fraudulent transaction. The most evident risks associated with PPIs are –
Application for Prepaid Payment Instrument should be made to Dept. of Payment and Settlement Systems, Reserve Bank of India. The Reserve Bank of India has published the detailed guidelines, which can be accessed in RBI website.