written by | May 25, 2022

All About Prepaid Payment Instruments

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Table of Content


PPIs (prepaid payment instruments) are payment instruments that allow you to shop for a product and services with cash saved in or on the instrument. PPIs, or prepaid payment instruments, square measure bills of exchange that alter the purchasing against the worth control at intervals or on the instrument, as specified by the RBI in their Payment and Settlement Act, 2005. Money transfers, banking services, exports, and a range of different necessary services are also obtainable.

The device saves the instrument's owner's quantity that has already been charged for using any method, money, bank account, debit card, credit card, or perhaps a lot more PPIs. PPIs include payment wallets, smart cards, magnetised chips, vouchers, mobile wallets, etc. Any device that allows you to get a prepaid payment is a PPI. In some cases, prepaid payment instruments, or PPIs, square measure usually pre-loaded cards with a planned payment purpose. Additionally, the RBI will launch a new prepaid payment instrument for online payments up to ₹ 10,000.

Did you know?

Several corporations have sought authorisation from the Reserve Bank of India (RBI) to line up business in Prepaid Payment Instruments as part of the government's objective to ensure a cashless economy and a digital India (PPI). Following demonetisation, India has seen the most traffic in prepaid payment instrument issuance.

Types of PPIs (Prepaid Payment Instruments)

In line with the RBI, you can obtain prepaid payment instruments in three ways. These are the details:

  1. Closed system: A closed system in which the PPI is only valid for purchases made from the entity that issued it. The PPI will be invalid if a person attempts to purchase goods or services from a different provider. Cash withdrawals against the PPI balance are likewise prohibited under this strategy. The RBI does not require prior authorisation to issue PPIs because this method is not classified as a payment mechanism. Closed system PPIs include paper vouchers, gift certificates, coupons, and smart cards that can only be used at the facilities that issue them, such as metro railcards and chips.
  2. Semi-closed system: Closed-loop system PPIs are only useful in a few situations. RBI should approve banking institutions and non-banking organisations to issue PPIs. The RBI must approve or authorise the issue of PPIs before they can be issued. They can be utilised in a cluster of merchants who have explicitly agreed to accept PPIs as payment from the PPI issuer, either by location or individual businesses. This form of contract can be set up through a payment aggregator or a payment gateway, and it doesn't have to be between the issuer and the company that takes PPI as a payment method. Like those obtained under the closed system, PPIs obtained under the semi-closed system cannot be used to withdraw cash, and this is true whether a bank-issued the PPI.

Also Read: What Are The Negotiable Instruments – Meaning, Types & Uses?

  1. Semi-Open System: These payment instruments can buy products and services from any merchant who accepts credit cards (point sale terminals). The holder of these instruments cannot withdraw cash or redeem them.
  2. Open system: PPIs will solely be issued by monetary establishments that the run batted in has approved below the open system. You can use these instruments for purchases, remittances, and money withdrawals, among different things.

    

Who Can Issue Prepaid Payment Instructions?

  • To be qualified to issue PPIs, non-banking entities, such as businesses, must meet the following requirements: – The firm must be registered in India. – The minimum paid-up capital of the company must be larger than ₹ 5 crores. - You must maintain a net worth of ₹ 1 crore.
  • Any entity that meets the RBI's qualifying conditions can issue PPIs when it comes to banks. Only banks that the RBI has approved are allowed to facilitate Mobile Banking Transactions.
  • PPIs can only be issued in a semi-closed or closed system by non-banking financial institutions and corporations. PPIs for mobile devices are covered. Non-banking enterprises are only required to issue PPIs if they have an escrow account with one of the country's scheduled commercial banks.
  • Mobile service providers may issue prepaid mobile values. In addition to talk-value, such prepaid value as a payment instrument should be limited to purchasing just such value-added digital content/services for use on mobile phones. It is impossible to use prepaid cell phone credit to buy other goods or services.

Also Read: What is e-RUPI?

                                     

Semi-closed Prepaid Payment Instruments

Semi-closed PPIs come in three varieties. Only a set amount of money can be loaded into the instrument, depending on the type of PPI. These are the details:

1. Minimum detail PPI: This kind of PPI collects the blank minimum of information on the PPI holder. The PPI establishment solely received the holder's name and number; no different details, such as residence, pan number, aadhar variety, or checking account data, were collected. In this circumstance, the utmost quantity of cash loaded onto the PPI is ₹ 10,000.

2. Loading only from a bank account: Loading solely from a bank account: the utmost quantity of cash placed onto the PPI is ₹ 10,000 if it will solely be loaded from a checking account and not from the other suggests that like money.

3. Full KYC PPI: The utmost quantity deposited onto the instrument will increase to ₹ 1,00,000 once the PPI establishment receives and registers the whole KYC of the PPI holder.

Conclusion

The business of prepaid payment instruments grew significantly over the recent year due to demonetisation. The volume of transactions conducted through PPIs has increased dramatically. PPIs were used in less than 10 crore transactions in July 2016. By July 2017, the figure had increased to more than 27 crores. PPI issuers' various promotional plans, such as cash backs, combined with the convenience of setting up and utilising PPIs, proved to be a driver for the digital payments revolution's success.

The 2017 New Master Directions have brought about a lot of good developments in the PPI regulatory system, such as interoperability, fraud prevention mechanisms, steps to limit PPI misuse, and an improved consumer protection framework, among other things. However, these have created several roadblocks for stakeholders, including reducing the ease and convenience of using PPIs by requiring stringent KYC compliance for PPI accounts to be completed in such a short period, a significant increase in the minimum net-worth requirements, and various mandatory security requirements to be met, to name a few.
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FAQs

Q: What distinguishes a 'full-KYC' PPI from others?

Ans:

The following are the key characteristics of 'Full-KYC' PPIs:

  1. Natural replayability;
  2. At no point in time may the overdue amount exceed ₹ 2,00,000.
  3. There are no monthly credit debit limits, and there are no monthly credit or debit limits.
  4. They can be used to buy goods and services, withdraw money, and transfer money.

Q: What types of PPIs are available?

Ans:

PPIs can be issued in the form of cards, wallets, or any other instrument that can be used to access the PPI and utilise the funds contained within. PPIs cannot be issued in the form of paper vouchers.

Q: What is the maximum time a customer can keep a small PPI (with a cash loading facility)?

Ans:

A small PPI (with cash loading capability) can only be retained for 24 months. The 24-month period begins on the date that the PPI is opened, and it must be changed into a full-KYC PPI within the next 24 months, failing which no additional credit in that PPI will be permitted. On the other hand, the PPI holder is free to use the remaining balance.

Q: How can PPIs be loaded?

Ans:

Cash (not permitted in one type of Small Instrument), debit to a bank account, credit and debit cards (as permitted from time to time), and other payment instruments issued by organisations regulated in India and only in Indian Rupees (INR) can be loaded/reloaded on PPIs.

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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.