RBI as per the guidelines provided under the Payment and Settlement Act, 2005 defined Prepaid Payment Instruments (PPIs) as instruments of payment that facilitate buying of goods and services, including the transfer of funds, financial service and remittances, against the value stored within or on the instrument.
The value stored in the instrument is represented by the value that has already been paid for by the holder or the instrument by any method such as, by cash, by debit from a bank account, credit card or even from other PPIs. PPIs can come in the form of payment wallets, smart cards, magnetic chips, vouchers, mobile wallets etc. any instrument that can be used to access a prepaid amount is a PPI.
1. Types of PPIs
According to the RBI, PPIs in the country can be issued under three systems. They are as follows:
1. Closed system: The close system is a system where the PPI that is issued is only valid when used against purchases from the entity which issued it in the first place. The use of such a PPI will be invalid when a person tries to purchase items or services from a different provider. This system also does not allow cash withdrawal against the amount that is stored in the PPI. Since this system of PPI is not classified as a payment system by the RBI, the issuance of such PPIs does not require the prior approval of the RBI.
Examples of a closed system PPI are paper vouchers or gift vouchers and coupons; it also will include smart cards that can only be used in the establishments that issue them such as metro railcards and chips.
2. Semi-closed system: Unlike PPIs issued under the closed system, PPIs issued under the semi-closed system can be used in multiple establishments but not all. PPIs under this system can only be issued by banking institutions approved by the RBI or non-banking institutions authorised by the RBI. PPIs cannot be issued without the prior approval or authorization from the RBI.
They can be used for purchases or remittance facilities etc. in a group of clearly identified merchants either by location or by individual establishments who have specific contracts with the issuer of the PPIs to accept PPIs as payment. Such a contract can be through a payment aggregator or a payment gateway and does not need to be directly between the issuer and the establishment accepting the PPI as a payment option.
Similar to PPIs issued under the closed system PPIs issued under the semi-closed system also are not allowed to facilitate cash withdrawal. This is irrespective of whether the PPI is issued by a bank or not.
3. Open system: PPIs under this system can only be issued by banking institutions that have been approved by the RBI. These instruments can be used to facilitate purchases, remittances, cash withdrawals, etc. examples of PPIs issued under this system are debit cards and credit cards.
2. Who Can Issue PPIs?
- With regards to non-banking entities such as companies, the requirements to be met by them to be eligible to issue PPIs are as follows-
- The company must be incorporated in India.
- The minimum paid-up capital of the company must be more than Rs 5 crore.
- Minimum positive net worth must be Rs 1 crore at all times.
- When it comes to banking institutions, all banks which comply with the eligibility criteria established by the RBI are allowed to issue PPIs. But when it comes to providing Mobile Banking Transactions, only banks that have been approved by the RBI may launch mobile-based PPIs.
- In the case of Non-Banking Financial Institutions and entities, they are only allowed to issue PPIs under the semi-closed or the closed system. This includes mobile-based PPIs. The only condition to the issuance of PPIs by non-banking entities is that they are required to maintain an escrow account with any scheduled commercial banks in the country.
3. Types of Semi-Closed PPIs
There are three types of semi-closed PPIs. Depending on the type of the PPI, only a certain amount of money can be loaded onto the instrument. They are as follows:
1. Minimum detail PPI: this type of PPI means that only the bare minimum details of the holder of the PPI are obtained. Such as only the name and the number on the holder and no other details such as address, pan number, aadhar number, or bank account details etc. have not been obtained by the PPI issuer. In such a case, the maximum amount of money that may be loaded on the PPI is up to Rs 10,000.
2. Loading only from a bank account: In the case where the PPI can only be loaded via the bank account and not through any other means such as cash etc. the maximum amount of money that can be loaded onto the PPI is Rs 10,000.
3. Full KYC PPI: where the full KYC of the PPI holder has been obtained and registered by the PPI issuer the maximum limit of money that can be loaded onto the instrument increases to Rs 1 lakh.
4. Customer Protection
The RBI, for the purpose of protecting the holders and acceptors of PPI, are protected from exploitation and fraud, require the issuer of the PPI to state all the terms and conditions that are entailed in the usage of the PPI in simple and clear language. This declaration by the issuer of the PPI has to give special attention to bring to the notice of the customer the following terms.
- All fees and charges against the usage of the PPI.
- The direct contact information to customer services, such as the phone number, email address and website URL.
- The validity period of the instrument and the terms and conditions of expiry of the instruments.
- The terms of depreciation of the value of the instrument if any after the period of validity is over.
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