A Prepaid Payment Instrument (PPI) can be used to buy goods and services including financial services as well as remittance of money from one place to another within India. Some of the well-known Prepaid Payment Instruments (PPIs) include Paytm (now Payments Bank), Phone Pay, Ola Money, Amazon Pay, DMRC, mPurse Wallet, Mobikwik, Unimoni (Semi-Closed Prepaid Payment Instruments (PPIs)), Gift card (Closed Prepaid Payment Instruments (PPIs), Travel/Debit/credit cards (Open Prepaid Payment Instruments (PPIs).
Prepaid Payment Instruments are methods that facilitate the purchase of goods and services against the value stored on such instruments. The value stored on such instruments represents the value paid for by the holder, by cash, by debit to a bank account, or by credit card. The prepaid instruments can be issued as smart cards, magnetic stripe cards, internet accounts, online wallets, mobile accounts, mobile wallets, paper vouchers, and any such instruments used to access the prepaid amount. Instruments are mostly seen in the form of Prepaid Cards, Gift Card, and Mobile App/Wallet.
Various Categories of Prepaid Payment Instruments
The prepaid payment instruments are broadly classified under the following categories:-
Closed System Payment:
A closed wallet is a wallet that is issued by a company to a consumer for buying goods and services exclusively from that company. Examples: Flipkart, Amazon, Makemytrip, etc. Such instruments do not allow cash withdrawal or redemption.
Restrictions of Close System Payment Wallet:
- The closed wallet does not permit cash withdrawal or redemption.
- In case money is stored in a closed wallet, it can only be used to purchase from the particular Site.
Open system payment
This is a type of wallet that can be used to purchase goods and services and also permit cash withdrawal at ATMs. Only a Banking entity is allowed to issue such an instrument in the market.
You can use the Open system payment wallet:
- For cash withdrawal at an ATM
- Payment on purchase of goods and services by swiping
- Use the POs machine for making payments.
Semi-Closed system payment:
It is a wallet that can be used to buy goods and services as it is a payment instrument that is redeemable by a clearly identified merchant that contracts specifically with the issuer to accept the payment instrument. Examples- Phonepay, Mobikwik, mPurse, etc.
You can use a Semi-Closed payment wallet:
- To Pay the affiliated merchant for purchasing goods
- Purchase from wallet issuer
- Transfer money
Commonly Issued Prepaid Payment Instruments (PPIs) in India
Some of the commonly issued Prepaid Payment Instruments (PPIs) in India are:
- Mobile Prepaid Wallet Instruments: The prepaid talk time issued by mobile service providers like Reliance Jio, Airtel, etc. This value of talk time can also be used for the purchase of 'value added service' from the mobile service provider or third-party service providers.
- Gift Cards issued by NBFCs, Banks, and any other Companies: These are non-reloadable cards issued for a maximum period of 3 years from the date of issuing the card, up to the specified limit. Additionally, they cannot be redeemed against cash.
- Social benefit cards for Government Employees: Banks are allowed to issue Prepaid Payment Instruments (PPIs) to Government Organizations for onward issuance to the beneficiaries of Government-sponsored schemes (e.g. Food vouchers). Here verification of the beneficiary is not the accountability of banks but that of the government organization issuing such cards. They can be loaded/reloaded up to the specified limit only by debit to a bank account, managed by the Government Organizations with the same bank.
- Remittance Cards for Cross-Border Transactions: These are Prepaid Payment Instruments (PPIs) issued by banks for credit of cross-border inward remittances.
- Corporate/Business Cards: Banks are permitted to issue prepaid instruments up to the specified limit to corporate/businesses listed on stock exchanges, for onward issuance to their employees. These are linked to the bank accounts of the employees but primary responsibility for identification of the beneficiary lies with corporates and not with banks. These are loaded/reloaded only by debit to the bank account and provide for the facility of fund transfer (for the amount remaining on the card) to the bank account of the employee.
- Travel Cards for NRI’s & Foreign Visitors: These are Rupee denominated non-transferable Prepaid Payment Instruments (PPIs) issued by overseas branches of banks in India (directly or in collaboration with the exchange houses/money transmitters) for visiting foreign nationals and Non-Resident Indians (NRIs). The cards can be issued up to an amount of Rs.2 lakhs only by loading from a KYC-compliant bank account. Moreover, cash withdrawals from such Prepaid Payment Instruments (PPIs) are restricted to Rs 50,000/- per month. Such Prepaid Payment Instruments (PPIs) are activated by the bank only after the traveler arrives in India and can be used only for transactions/purchases in India. Foreign travel card transactions can only be settled in Indian Rupee.
- PPI for Mass Transit Systems (MTS): These are semi-closed Prepaid Payment Instruments (PPIs) issued by the mass transit system operator (e.g. Metro trains, transport corporations, etc.) for automated fare collection. Apart from the mass transit system, such Prepaid Payment Instruments (PPIs) can also be used at other merchant’s facilities whose activities are allied to or are carried on within the premises of the transit system. They are reloadable in nature and at no point in time, the value/balance in PPI can exceed the limit of Rs. 2,000/-.
Who Can Issue Prepaid Payment Instruments in India?
- Only those companies incorporated in India and have a minimum paid-up capital of Rs. 5 crore and minimum positive net worth of Rs. 5 crore at all times are permitted to issue Prepaid Payment Instruments (PPIs) in India. Subject to reach Net Worth of INR 15 Crore by the end of 3rd Financial Year of Authorization.
- Banks that comply with the eligibility criteria are permitted to issue all categories of Prepaid Payment Instruments (PPIs). However, only those banks which have been permitted to provide Mobile Banking Transactions by the Reserve Bank of India are permitted to launch mobile-based pre-paid payment instruments (mobile wallets & mobile accounts). Non-Banking Financial Companies (NBFCs) and other persons are permitted to issue only closed and semi-closed system payment instruments, including mobile phone-based pre-paid payment instruments. Non-bank persons issuing payment instruments are required to maintain their outstanding balance in an escrow account with any one of the scheduled commercial banks.
- Persons issuing pre-paid payment instruments have to maintain a log of all the transactions undertaken using these instruments. This data is made available for scrutiny by the Reserve Bank or any other agency/agencies as directed by RBI. They also need to file a Suspicious Transaction Report (STR) to Financial Intelligence Unit – India (FIU-IND).