RBI Fines Amazon Pay (India) for not Complying with PPI & KYC Norms

Swetha Dhinesh

28 May, 2024

Amazon Pay (India) Pvt Ltd was fined Rs 3.06 crore by the Reserve Bank of India for failing to follow the norms on Know Your Customer (KYC) and Prepaid Payment Instruments (PPI). The entity was initially given a chance to provide justification for why a penalty should not be imposed for non-compliance with the RBI’s directions. After taking into consideration the entity’s response, RBI came to the conclusion that the accusation of failing to follow RBI’s regulation was proven and warranted the imposition of a monetary penalty.

Prepaid Payment Instruments

PIs are instruments that make it easier to pay for products and services, conduct financial transactions, enable remittance services, etc., using the value they store. Prepaid payment instruments, or PPIs, are forms of payment that let you make purchases using money that has been saved up for or placed on the instrument.

According to the RBI’s Payment and Settlement Systems Act of 2007^[1], prepaid payment instruments, also known as PPIs, are bills of exchange that vary the purchasing in relation to the value control periodically or directly on the instrument. Exports, financial services, money transfers, and a variety of other essential services are also obtainable.

The gadget stores the amount that has already been charged to the instrument’s owner using any mechanism, including money, a bank account, a debit card, a credit card, or possibly multiple PPIs. PPIs include things like mobile wallets, smart cards, magnetised chips, and payment wallets. A PPI is any device that enables prepaid payments. Prepaid payment instruments, sometimes known as PPIs, are occasionally pre-loaded cards with a specific payment goal.

Who are the PPI issuers?

Both banks and non-banks may issue PPIs. PPIs can be issued by banks with RBI authorisation. Companies incorporated in India and registered under the Companies Act, 1956/2013 are non-bank PPI issuers. They can run a payment system for granting PPIs to people or organisations once they have received RBI approval.

Reason for the penalty

The entity was found to be in violation of the RBI’s guidelines regarding the PPI and Know-Your-Customer (KYC) norms. The fine was issued in accordance with the authority vested with the RBI under Section 30 of the Payment and Settlement Systems Act of 2007. “Indian Payments players have been seeking to meet certain criteria given down by the RBI. 

This action is based on flaws in regulatory compliance. It is not intended to pronounce upon the validity of any transaction or agreement entered into by the firm with its clients. They employed a variety of methods, including paper KYC agencies, even in the event of KYC. Already RBI mandated them to do the KYC themselves, not through agencies.

KYC PPIs

After completing the Prepaid Payment Instruments holder’s Know Your Customer (KYC) process, PPIs are issued by both banks and non-banks. These Prepaid Payment Instruments can be used to make cash withdrawals, fund transfers, and purchases of goods and services.

KYC requirements

1. After completing the KYC of the PPI holder, banks and non-banks are able to issue such PPIs.
2. The opening of full-KYC PPIs and converting Small PPIs into full-KYC PPIs are possible using the Video-based Customer Identification Process (V-CIP), described in the Department of Regulation’s Master Direction on KYC dated February 25, 2016 (as amended from time to time). 
3. These PPIs must be reloadable in nature.
4. The amount outstanding shall never be greater than Rs. 2,00,000 at any point in time.
5. The fund can be moved to the PPI holder’s “own bank account” or “return to source account,” which is the payment source from whence the PPI was loaded. However, the PPI issuer must establish the limits while taking into account the risk profile of PPI holders, additional operational risks, etc.
6. The PPI issuer must offer the “pre-registered beneficiaries” feature, which enables PPI holders to register beneficiaries by providing information about their bank accounts, and PPIs issued by the same issuer (or a different issuer if and when permitted).
7. The maximum monthly cash transfer limit for such pre-registered beneficiaries is Rs. 2,00,000 per beneficiary. The PPI issuer will determine the upper and lower bounds of this ceiling, taking into account the risk profile of PPI holders and additional operational risks.
8. The amount of maximum money that can be transferred in any other circumstances is Rs. 10,000 per month. 
9. The maximum amounts that can be transferred from these PPIs to other PPIs, debit cards, and credit cards.
10. The purchase of goods and services using PPIs is not subject to a separate limit, and the PPI issuer may set a limit for these uses within the overall PPI limit.
11. The PPI issuer must give PPI holders clear notice of these restrictions and give them the options they need to set their own fund transfer limits.
12. The PPI issuer must additionally provide an option to close the PPI and transfer the remaining amount in accordance with the restrictions for this kind of PPI. To this end, the issuer shall give the holder the option, including at the time the PPI is issued, to provide information regarding a pre-designated bank account or other PPIs of the same issuer to which the amount balance available in the PPI shall be transferred in the event that the PPI is closed and in the event of its validity period has expired.
13. Cash withdrawal is allowed for PPIs issued by banks. However, under a monthly limit of Rs. 10,000 across all locations and cash withdrawals at PoS devices will be restricted to a maximum of Rs. 2,000 per transaction, subject to the restrictions outlined in the RBI Circular.
14. Cash withdrawals from non-bank-issued PPIs are allowed up to a maximum limit of Rs. 2,000 per transaction within a monthly cap of Rs. 10,000 per PPI through all channels (agents, ATMs, PoS devices, etc.). 
15. The features of such PPIs must be made clear to the PPI holder by SMS, e-mail, or any other means at the time of the PPI’s issuance or prior to the first loading of funds.

Power of RBI to impose the penalty

The penalty was issued in accordance with the authority granted to the RBI under Section 30 of the Payment and Settlement Systems Act of 2007. This action is taken because of a lack of regulatory compliance and is not meant to judge the legality of any agreements or transactions the organisation has with its clients.

• Under section 30(2), the Reserve Bank shall provide the defaulter with a notice directing him to give justification as to why the amount specified in the notice should not be imposed as a penalty, and the defaulter shall also be provided with a reasonable opportunity to be heard.

• As per section 30(3), any penalty imposed by the Reserve Bank under this section shall be payable within thirty days of the date on which notice issued by the Reserve Bank demanding payment of the amount is served on the defaulter. 

• Suppose the person fails to pay the amount within such a period. In that case, the amount may be recovered on a direction made by the principal civil court having jurisdiction in the area where the registered office of the defaulter company or the official business of the person is located.

• Under section 30(4), the Reserve Bank may liquidate the securities held to the defaulter’s credit or debit the defaulter’s current account, if any, in order to recover the amount of the penalty. It may also do so in accordance with the requirements of this Act.

• Section 30(5) states the court that issues a direction under subsection (3) of section 30 of the Payments and Settlements System act of 2007 shall issue a certificate outlining the amount the defaulter is required to pay. Each of these certificates must be enforceable in the same way that a decree made by the court in a civil suit.

Conclusion

It shows how RBI is strictly monitoring and regulating the industry. This decision mandates everyone to follow the RBI regulatory compliance in Prepaid Payment Instruments and KYC norms. Failing to do so will be considered a violation under the framework of RBI regulation.

Also Read:
All you need to know about Pre-Paid Instruments
What are the types of prepaid payment instruments?