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.

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


Regards

Team ExamPundit

This post was last modified on November 27, 2017 9:03 am