What
is Prepaid-Payment Instrument?
- Goods or services can be purchased in a prepaid manner by paying the money through cash, credit card or debit from a bank account beforehand and storing it at a virtual place. Payment is done against that amount when required.
- Presently, they are be issued as smart cards, magnetic stripe cards, internet accounts, internet wallets, internet purse, mobile accounts, mobile wallets, mobile purse and paper vouchers.
Types
of Prepaid-Payment Instruments
The pre-paid payment instruments are generally of four types:
(1) closed-system payment instruments (2) Semi-Closed system payment
instruments (3) Semi-Open system payment instruments and (4) Open system
payment instruments.
- Closed System Payment Instruments: These are payment instruments generally issued by business establishments for use at that establishment only or for availing services from a service provider. These instruments are generally not re-loadable and do not permit cash withdrawal. Examples of such instruments are gift vouchers issued by certain merchant establishments and telephone calling cards. The mobile pre-paid value may also be considered as closed-system prepaid payment instrument though they can be used for availing additional value added services.
- Semi-Closed System Payment Instruments: These are payment instruments which are redeemable at a group of establishments associated with a particular shopping mall, tourist resorts etc. or at establishments and service providers listed out by the issuer. These instruments are generally issued by third party service providers. These instruments can be issued in re-loadable or non-reloadable formats but do not permit cash withdrawal.
- Semi-open System Payment Instruments: These are payment instruments which can be used for purchase of goods and services at any card accepting merchant locations (Point of sale terminals). These instruments can be issued in re-loadable or non-reloadable formats but they do not permit cash withdrawal. Examples of such cards are the gift cards issued by banks which are operated and settled through recognized card companies.
- Open System Payment Instruments: These are payment instruments which can be used for purchase of goods and services. These instruments can be issued in re-loadable or non-reloadable formats. These instruments also permit cash withdrawal at ATMs. Examples of such cards are the Payroll cards and travel cards issued by banks which are operated and settled through recognized card companies.
Source: RBI Website
Norms
for setting Up Prepaid-Payment Instruments
- The Reserve Bank of India (RBI) on 3 December 2014 relaxed the norms for Pre-paid Payment Instruments (PPI) and doubled the limit of PPI from 50000 rupees to one lakh rupees.
- The move would help in achieving the objective of limiting cash transactions in the system.
Highlights of RBI norms on PPI
- The maximum validity of gift cards has been enhanced from one year to three years. Other provisions of PPI guidelines with respect to gift cards will continue.
- RBI also allowed issue of multiple PPIs by banks from fully-KYC compliant bank accounts for dependent or family members.
- Only one card can be issued to one beneficiary.
- The bank may put in place mechanisms to monitor and report suspicious transactions on these PPIs to Financial Intelligence Unit India (FIU-IND).
- The central bank also permitted banks to issue rupee denominated PPIs for visiting foreign nationals and NRIs.
- However, this would be subject to certain conditions like the cards can be issued by overseas branches of banks in India directly or it can be issued by co-branding with the exchange houses/money transmitters up to a maximum amount of 2 lakh rupees by loading from a KYC compliant bank account.
- Such PPIs should be activated by the bank only after the traveller arrives in India and cash withdrawal will be restricted to 50000 rupees per month.
- The cards should be issued strictly for use in India and transactions should be settled in Indian rupee.
Important For: All Banking Exams and Interviews
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Team ExamPundit