Short Note – Prepaid Payment Instruments in India

Hello and welcome to ExamPundit. We have prepared a short note on Prepaid Payment Instruments. It is very important for all Banking Exams and also IBPS Interviews, SBI Interviews.

• 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.

• 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.

• 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.

• 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.

Team ExamPundit