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What is PPI: A Complete Guide to Prepaid Payment Instrument

Prepaid Payment Instrument

Numerous payment methods have been introduced and approved by RBI over the past few years, which has facilitated the purchase of goods and services. Prepaid Payment Instruments (PPIs) are an example of this kind of technological advancement. One of the most notable characteristics of this type of instrument is that it already contains money. PPIs in India can take various forms, such as paper coupons, prepaid smart cards, online wallets, etc.

This article discusses what prepaid payment instruments are, the different types of prepaid instruments in India, the RBI rules and regulations, and much more.

What is a Prepaid Payment Instrument?

The term “prepaid payment instrument” refers to an instrument that allows you to purchase goods and services with money stored within or on the instrument. PPIs, or prepaid payment instruments, are bills of exchange that change the purchasing against the value control at or on the instrument, as specified by the Payment and Settlement Act, 2005 of the Reserve Bank of India. Transfers of funds, banking services, exports, as well as a variety of other essential services, are also available.

Payment methods such as cash, bank account, debit card, credit card, or additional PPIs can be charged to the instrument’s owner using the device. PPIs include mobile wallets, payment wallets, smart cards, magnetic chips, vouchers, and more. PPIs include any equipment that enables prepaid payments. Prepaid payment instruments, or PPIs, are typically pre-loaded cards with a predetermined payment purpose. In addition, the RBI introduced a new prepaid payment instrument for online transactions of up to 10,000.

Prepaid Payment Instrument

Types of Prepaid Payment Instruments in India

According to the RBI, PPIs in the country can be given out using one of three systems. They’re as follows:

1. Closed system

Those under a closed system can only use PPIs to buy items from the company that issued them. When a person tries to purchase goods or services from a different provider, the use of such a PPI will be invalid. Additionally, this system does not permit cash withdrawals concerning the PPI balance. The issuance of such PPIs does not require prior RBI approval because the RBI has not classified this PPI system as a payment system. Some examples of a closed system PPI are paper vouchers, gift vouchers, and coupons. It will also include smart cards that can only be used in the places that gave them out, like metro railcards and chips.

2. Semi-closed system

In contrast to PPIs issued under the closed system, semi-closed system PPIs can be used in some but not all establishments. Under this system, the RBI may only authorise non-banking institutions or banking institutions to issue PPIs. Without prior approval or authorisation from the RBI, PPIs cannot be issued. They can be used for purchases, remittance services, and other transactions at a variety of clearly identified retailers, either by location or at individual businesses that have agreements with the PPIs’ issuers to accept them as payment.

Such a contract does not have to be made directly between the issuer and the business accepting PPI as a form of payment; it may instead be made through a payment aggregator or payment gateway. PPIs issued under the semi-closed system, like those issued under the closed system, are not permitted to facilitate cash withdrawals. This is true regardless of whether a bank issued the PPI or not.

3. Open system

Under this system, only banking institutions that have received RBI approval may issue PPIs. These tools can be applied to make purchases, send money, get cash out, etc. Under this system, debit cards and credit cards are examples of PPIs.

Types of semi-closed PPIs  

The three varieties of semi-closed PPIs are as follows. The maximum amount of money that can be loaded onto a PPI varies depending on its type. Here are some of them:

  • Minimum detail PPI: With this type of PPI, only the most basic information about the PPI holder is gathered. The PPI issuer may only have the name and the holder’s ID number; they may not have the holder’s address, PAN number, Aadhar number, bank account information, etc. The most money that can be loaded onto the PPI in this situation is up to Rs 10,000.
  • Loading only from a bank account: If the PPI can only be loaded from a bank account and not with cash or other methods, the maximum amount that can be loaded onto the PPI is Rs 10,000.
  • Full KYC PPI: When the PPI issuer has fully verified the PPI holder’s identity and registered them, the amount that can be loaded onto the instrument increases to Rs 1 lakh.

Who can issue Prepaid Payment Instruments?

  1. To be authorised to issue PPIs, non-banking entities, like businesses, must meet the following criteria:
  • The company should be registered in India.
  • The company’s minimum paid-up capital must be more than Rs. 5 crore.
  • You must keep your net worth at $1,000,000 or more.

2. For banks, PPIs can be given out by any entity that meets the RBI’s requirements. Mobile Banking Transactions can only be facilitated by banks that have received approval from the RBI.

3. Business and non-banking financial institutions can only issue PPIs in a closed or semi-closed system. PPIs for portable electronics are protected. Only businesses that have escrow accounts with one of the nation’s scheduled commercial banks are required to issue PPIs.

4. Prepaid mobile values may be distributed by mobile service providers. Such prepaid value as a payment method should be restricted to only buying such value-added digital content/services for mobile phones, in addition, to talk value. Prepaid cell phone credit cannot be used to purchase any other products or services.

RBI rules and regulations

To protect the holders and acceptors of PPI from exploitation and fraud, the RBI requires the issuer of the PPI to clearly and concisely state all terms and conditions associated with its use. The following terms must be specifically brought to the customer’s attention in this declaration by the PPI issuer.

  • All fees related to PPI usage.
  • The direct contact information for customer support, including phone number, email address, and website address.
  • The duration of the instrument’s validity and the conditions surrounding the instrument’s expiration.
  • The terms of depreciation of the instrument’s value, if any, after the validity period has expired.

Prepaid Payment Instrument

Conclusion

As a result of demonetisation, the market for prepaid payment instruments has expanded significantly in recent years. The number of transactions made using PPIs has skyrocketed. PPIs were used in less than 10 billion transactions in July 2016. The amount reached more than 27 crores by July 2017. The convenience of setting up and using PPIs, along with the various promotional initiatives offered by PPI issuers like cash backs, contributed to the success of the digital payment revolution.

The 2017 New Master Directions have brought about several positive changes to the PPI regulatory system, including interoperability, fraud prevention mechanisms, measures to limit PPI abuse, and an improved consumer protection framework, among others. However, this has created many obstacles for stakeholders, including a reduction in the ease and convenience of using PPIs because KYC compliance for PPI accounts must be completed in such a short time frame, a significant increase in the minimum net-worth requirements, and several mandatory security requirements.

FAQs

1. What are Prepaid Payment Instruments?

Ans: The term “prepaid payment instrument” refers to an instrument that allows you to purchase goods and services with money stored within or on the instrument. PPIs, or prepaid payment instruments, are bills of exchange that change the purchasing against the value control at or on the instrument, as specified by the Payment and Settlement Act, 2005 of the Reserve Bank of India. Transfers of funds, banking services, exports, as well as a variety of other essential services, are also available.

2. What sets apart a ‘full-KYC’ PPI from others   

Ans: “Full-KYC” PPIs have the following salient features:

  • Natural replayability
  • The amount that is past due cannot ever go over 2,000,000.
  • There are no credit or debit monthly limits.
  • They can be used to transfer money, withdraw money, and purchase goods and services.

3. What various types of PPIs are available

Ans: PPIs can be issued as cards, wallets, or any other type of device that can be accessed to use the funds contained therein. Paper vouchers cannot be used to redeem PPIs.

4. What is the maximum amount of time a customer can keep a small PPI (with a cash loading facility)?

Ans: You can only keep a small PPI (with the cash-loading capability) for 24 months. The PPI must be converted into a full-KYC PPI within the following 24 months; otherwise, no additional credit for that PPI will be allowed. The 24-month period starts on the day the PPI is opened. The PPI holder, however, is free to utilise the remaining balance.

5. How do PPIs get loaded?

Ans: Payment instruments regulated in India and only in Indian Rupees (INR) can be loaded/reloaded on Personal Payment Instruments (PPI), including cash (unavailable in some types of Small Instruments), debit to a bank account, and credit and debit cards (from time to time).

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