RBI Circular

RBI 2024 Amendment to Master Direction on PPIs

On 27^th August 2021, the RBI issued a Master Direction on Prepaid Payment Instrument under the Payment and Settlement System Act, 2007, and the RBI issued a Master Direction Amendment on 23^rd February 2024 for PPIs. The PPIs are the instrument for payment to purchase goods and services and facilitate financial services, etc., against the merchants. The new amendment on the master direction on prepaid payment instruments has come up with some changes to the various types of PPIs for which banks and non-banks can issue PPIs. The main aim of issuing the amendment in the Payment and Settlement System Act, 2007 is to enhance the safety of digital payment in public transport services, and after approval from the RBI, the PPI issuers are permitted to issue PPIs for making payments within the public transport system.

Summary of the Prepaid Payment Instrument

Prepaid Payment Instruments (PPIs) serve as essential instruments in the digital payment system to offer an easy and flexible means of conducting transactions. The PPIs are issued by the bank and non-bank entities to enable cashless transactions for various goods and services. It has different forms, such as UPI, wallet, cards, etc., to utilize for digital payments anywhere. The PPIs play an important role in encouraging and promoting digital payment services for individuals who may not have bank accounts. During the recent amendments, the PPIs are authorized to be used in public transport systems to drive the traditional economy to a cashless economy in India. The PPIs, more importantly, need to align with the security policy to achieve growth in the economy, so advanced encryption, KYC and video-based customer identification process (V-CIP) of the PPI holders.

Importance of Digital Payment in Today’s Era

In the present time, digital payment has emerged as an important part of financial transactions by offering convenience, security, and accessibility. Digital payment contributes to financial inclusion by expanding access to formal financial services because the individual or merchant can participate in the digital economy. More importantly, digital payment needs to align with security policy to achieve growth in the economy, so advanced encryption, KYC, multi-factor authentication, and mechanisms of fraud detection offer protection against security breaches. After eliminating the need for cash transactions, cash flow management in the economy increased. Digital payment methods help reduce the issues of tax evasion, corruption, etc., which encourage digital payment.

Digest about the Recent Amendment on Master Direction on Prepaid Payment Instrument

The main purpose of the amendment is to issuance of the PPIs for public transport services. The bank and non-banks are permitted to issue PPIs to make payments within several public transport systems. Paragraph 10.2 of the previous Master Direction on Prepaid Payment Instrument for PPIs for Mass Transit System (PPI-MTS) to allow the issuance of PPIs for transit services. The amendment referred to Section 10 (2), read with Section 18, which states that RBI (Reserve Bank of India) can amend the payment system for the interest of management or operation of the payment system in the public interest. The previous MD-PPIs have made a regulation on the issuance of PPIs with full KYC verification to enhance security. The full KYC PPIs, as stated in the previous Master Direction on PPIs paragraph 9.2, have promoted a wider acceptance of digital payment because the banks and non-banks shall be allowed to issue such PPIs after completing the Know Your Customer verification or video-based customer identification process (V-CIP) of the PPI holders.

Impact of the Amendment of MD-PPIs

The changes or amendments enhance customer convenience, affordability, time efficiency, etc., through PPIs in public transport services by allowing PPI issuers to offer a suitable payment solution tailored to the purpose of the adoption of digital payment for the convenient digital payment solution in transit services, this also enhances the usage of digital payment across the various sectors. The primary impact of the amendment is to make a seamless payment in public transport and benefits in easy payments and eliminate the hassle of carrying out changes to make it a time-consuming process, which will also increase the usage of public transport and help in the contribution towards the cashless economy. The RBI encourages the growth of digital payments by ensuring the safety and security of the payment system and updating the frameworks as per the changing needs of the economy. The amendment helps encourage the fintech systems and promotes the authorized bank and non-bank issuers to provide seamless operations with the other payment systems, which reduces dependency on specific merchants.

Conclusion

The recent amendment to Master Direction on Prepaid Payment Instrument’s main aim is to enhance the convenience, speed, affordability and safety of digital payment in the public transport system and the authorized and non-bank PPI issuers are allowed to issue the PPIs for making payments within the several public transport systems to encourage the adoption of digital payment. The amendment has a transformative impact on digital payment in India and promotes financial inclusion and aligning with the broader perspective of a digital India.  

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