WHAT ARE PREPAID PAYMENT INSTRUMENTS ?
Prepaid payment instruments are those which facilitate buying of goods and services, including the transfer of funds, financial service and remittances, against the value stored on such instruments and are licensed and regulated by the Reserve Bank of India.
These are generally issued in the form of smart cards, mobile wallets, paper vouchers, internet accounts/wallets. The value stored in the instrument is paid for by the holder of the instrument by any method such as, by cash, by debit from a bank account, credit card or even from other PPIs.
Only those entities who are incorporated in India, have a minimum paid-up capital of Rs. 5 crore and minimum positive net worth of Rs 1 crore at all times are permitted to issue such instruments in compliance with the Capital adequacy requirements of RBI from time to time.
TYPES OF PREPAID PAYMENT INSTRUMENTS (PPIs)
The PPIs are broadly classified into 3 categories, namely –
CLOSED SYSTEM PPIs – Closed PPIs are usually issued by businesses / organizations for buying their own products and services only. This system also does not allow cash withdrawal against the amount that is stored in the PPI. The approval of RBI is not required for the issuance of closed PPIs because these instruments cannot be used for payments and settlement for third party services and hence are not classified as payment systems.
Examples :- paper vouchers or gift vouchers and coupons, Delhi metro prepaid cards etc.
SEMI CLOSED SYSTEM PPIs – These payment instruments can be used for purchase of goods and services, including financial services at a group of clearly identified merchant locations/ establishments. These can only be issued by banking institutions approved by the RBI or non-banking institutions authorised by the RBI. Like closed PPIs, Semi closed system PPIs also do not permit cash withdrawal.
Examples of such PPIs include Paytm wallets, Airtel money, Mobikwik etc.
OPEN SYSTEM PPIs – These PPIs can only be issued by banking institutions approved by the RBI and can be used at any merchant for purchase of goods and services, including financial services, remittance facilities, etc. An important feature of these PPIs that they can be used for limited cash transfer and cash withdrawals. The limit of cash withdrawal of these PPIs have been raised to Rs 20,000 during the time of demonetization.
Examples of such PPIs include – Vodafone mPesa, debit cards and credit cards etc.
***All PPIs issued in the country shall have a minimum validity period of 6 months from date of issuance or activation.