What are Prepaid Payment Instruments?

The Reserve Bank of India recently made three main changes to the Prepaid Payment Instruments.

What are Prepaid Payment Instruments?

The Prepaid Payment Instruments or PPI are means through which purchase of goods and services shall be made against the value stored in such instruments. The Prepaid instruments shall be used as magnetic stripe cards, smart cards, internet accounts, mobile accounts, online wallets, paper vouchers or any other instrument used to access a prepaid amount.

What are the three changes RBI made in prepaid instruments (PPI)?

In 2018, the PPIs were provided the option of becoming interoperable. Under this option, the customers of one company shall send funds to the customers of other company or bank or PPI. RBI provided this option only to those cases where a complete KYC is done. Even after two years, the migration towards KYC PPIs has not been achieved. KYC is Know Your Customer.

Thus, to increase the migration of PPIs to full KYC, the following changes have been introduced

  • The limit of outstanding balance in PPIs is to be increased from the current level of Rs 1 lakh to Rs 2 lakhs.
  • The facility of cash withdrawal is to be permitted for full KYC PPIs of non-bank PPI issuers.
  • The membership to RBI-operated Centralised Payment Systems (NEFT and RTGS) are to be opened to non-banks such as the Central bank regulated payment system operators.

What are the categories of PPIs used in India?

The following are the categories of Prepaid Payment Instruments used in India:

  • Closed System Payment Instruments
  • Semi-Closed System Payment Instruments
  • Semi-Open System Payment Instruments
  • Open System Payment Instruments Mobile Prepaid Instruments

The Closed System Payment Instruments are issued by a person. They are issued to facilitate purchase of goods from him or her.

The Semi-Closed System Payment Instruments are redeemable only at a group of identified merchants. They do not permit cash withdrawal or redemption by the holder.

The Semi-Open System Payment Instruments can be used at any card accepting merchant sale terminals. They do not allow cash withdrawal or redemption.

The Open System Payment Instruments allow cash withdrawals at ATMs and can be used for purchase of goods.

The Mobile Prepaid Instruments are issued by the mobile service providers.


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