Prepaid Payment Instrument(PPI) and Digital Banking
Prepaid Payment Instrument (PPI) is basically a payment card. The purpose of PPI is facilitating cashless transactions and hence is an important component of digital banking. Prepaid Payment Instruments facilitate purchase of goods and services against the value stored on such instruments. This instrument can be used for a variety of purposes like financial services, remittance facilities etc. It is also used for gifting.
Issuer and holder of Prepaid Payment Instrument
A company incorporated in India and registered under the Companies Act, 1956 / Companies Act, 2013 and which has received permission from RBI to issue and operate PPIs can act as an issuer. PPI issuer is an entity operating / participating in a payment system for issuing PPIs to individuals / institutions against payments received from the purchaser of PPI. Issuers are not envisaged to make any interest on the amount outstanding in the PPI account of the purchaser. PPI issuer shall have robust mechanism to distribute the amount so collected to the merchants and service providers who carry out their activity against acceptance of amount in the PPI through funds transfer / remittance services.
A PPI issuer can issue any one of the following two types to a customer :
- Minimum detail semi-closed PPI;
- KYC compliant semi-closed / open system PPI;
A holder is an individual / institution who purchases Prepaid Payment Instrument from a PPI issuer and utilizes the amount in the instrument for purchase of goods and services. When a person receives the PPI as gift, the recipient becomes the holder.
Different types of Prepaid Payment Instruments
PPIs issued in India can be broadly classified under three types viz. (i) Closed System PPIs, (ii) Semi-closed System PPIs, and (iii) Open System PPIs.
Closed System PPIs are issued by an entity for facilitating the purchase of goods and services from that particular entity only. Closed System PPIs do not support cash withdrawal. The disadvantage associated with Closed System PPI is that such instruments cannot be used for payments or settlement for third party services. As these type of PPIs are not envisaged for facilitating transactions with third parties, issuance of such instruments is not classified as payment system and does not require specific approval / authorisation from the Reserve Bank of India(RBI).
Semi-closed System PPIs are issued by banks and non-banks with proper approval from RBI. These cards can be used at a group of clearly identified merchant locations / establishments for carrying out transactions. These establishments will have a specific tie up with the issuer of card. These PPIs also do not support cash withdrawal, even if they are issued by banks.
Open System PPIs can be issued only by banks for which also approval is required from RBI. These instruments can be freely used at any merchant for purchase of goods and services. The advantage of Open System PPIs over other types is that these instruments permits cash withdrawal at ATMs. Transactions at Points of Sale (PoS) terminals and Business Correspondents (BCs) can also be carried out through these cards.
Loading/ Reloading of PPIs and amount ceiling of Prepaid Payment Instruments
Remittance to or loading/reloading of PPIs can be carried out through multiple channels like authorized banks and non-banks and through their oulets/agents. Payment can be made by way of cash, by debit to a bank account, by a credit / debit card, or from other PPIs. Such loading / reloading of Prepaid Payment Instruments shall be through payment instruments issued by entities in India and regulated by RBI. Loading/ reloading is permitted only in Indian Rupees (INR) only.
The maximum cash loading in a PPI is limited to 50,000/- per month or overall limit of the PPI whichever is lower. However, Prepaid Payment Instruments can be loading via electronic / online means up to the overall limit of the PPI. The maximum amount that can be loaded in a Prepaid Payment Instrument is Rs. 1,00,000, subject to other conditions.
What are the forms in which Prepaid Payment Instruments can be issued?
The PPIs can be issued as cards, wallets, and any other form which can be used to access and utilize the balance in the he PPI. However, issuance of PPIs in the form of paper vouchers is not permitted. Issuance of new PPIs every time is not envisaged, instead PPIs created for previous remittance by the same person shall be used.
Meal instruments can also be issued in the above form but only as semi-closed PPIs without cash withdrawal and funds transfer facilities.
Minimum validity period and inactive Prepaid Payment Instruments
The minimum validity period stipulated for all types of PPIs is one year from the date of last loading / reloading in the PPI. PPI issuers have the freedom to issue PPIs with a longer validity. Issuers shall disclose the expiry period of the PPI to the customer while issuing PPIs. Applicable charges shall also be disclosed.
An issuer of PPI shall convert a PPI with no financial transaction for a consecutive period of one year as inactive. A PPI shall be made inactive after sending a notice to the PPI holder. PPI shall be reactivated only after validation and applicable due diligence.
In case of PPIs issued by banks, customers can approach Banking Ombudsman (BO) for redressal of grievances. Further, they are also protected under Limited Liability to Customer norms announced by RBI for unauthorized transactions against payment cards.
Every payment transaction using a PPI must be authenticated by explicit customer consent. Similarly, all PPIs issued in the form of cards (physical or virtual) shall necessarily have an Additional Factor of Authentication (AFA) as required for debit cards. AFA is, however, exempted for PPIs issued under Mass Transit system (PPI-MTS)
