Prepaid Instruments – An Analysis of Principal Instructions Issued by RBI
The banking regulator, the Reserve Bank of India (RBI), on August 27, 2021 issued the Policy Instructions on Prepaid Payment Instruments (‘MD PPI‘) introduce significant changes to the existing legal regime relating to prepaid instruments (PPI) to know., under the general instructions on the issue and operation of prepaid payment instruments (‘2017 DG‘).
With the outbreak of the Covid-19 pandemic, there has been a drastic increase in the number of people using digital payment systems, bringing significant profitability to the digital payment and financial technology industry in India.
PPIs refer to instruments that facilitate the purchase of goods and services, financial services, money transfer facilities, etc., relative to the value stored in them. For example, Sodexo cards with preloaded value. The MD PPI has now classified PPI into two new categories, with the aim of simplifying the regulatory procedure, compared to the three categories provided for in the MD 2017, namely PPI of closed systems, PPI of semi-closed systems and PPI of open systems.
The MD PPI requires that no entity may set up and operate payment systems for PPIs without the prior approval / authorization of RBI, and banks and non-bank entities are only permitted to issue PPIs that ‘after obtaining the necessary approval / authorization from RBI for payment and settlement. Systems Act, 2007. The main features of the MD PPI are presented below:
A. Classification of PPIs:
The two new categories of PPI that can be issued by banks and non-banks under the MD PPI are:
- Small PPIs:
- Issued after obtaining the minimum information from the PPI holder for the purchase of goods and services only.
- Minimum details include Unique Password Verified (OTP) mobile phone number and unique name and identity / identification number self-declaration of any “required document” or “officially valid document (OVD)” or any such document with a name listed for this purpose. in the Master Directions on Know Your Customer (KYC) standards.
- Small PPIs can hold cash up to 10,000 INR charged per month, and not exceeding 1.2 lakh INR per year.
- The maximum outstanding amount and the maximum debit amount (PPI with cash load facility) in any given month must not exceed INR 10,000.
2. Complete KYC PPI:
- Issued after completing the PPI Holder’s Know Your Customer (KYC) for purchasing goods and services, transferring funds, or withdrawing cash.
- The Video-Based Client Identification Process (V-CIP) can be used to open full KYC PPIs as well as convert small PPIs to full KYC PPIs.
- The maximum amount unpaid at any time must not exceed INR 2,000,000.
- The limit of 2,000,000 INR per month of fund transfer in the case of pre-registered beneficiaries and the maximum limit of transfer of funds in all other cases is 10,000 INR per month.
- RBI had used the term in previous notifications, but this is the first time the same is defined.
- RBI as part of the MD PPI has made interoperability mandatory for all PPIs at full KYC, interoperability on acceptance and QR codes in all modes must be interoperable by March 31, 2022.
- Interoperability will allow a payment system to be used in conjunction with other payment systems, such as wallet interoperability through the Unified Payment Interface (UPI) and card-based interoperability through the National Payments Corporation of India (NPCI).
- PPIs issued in mass transit systems are exempt from the interoperability requirement, and issuers of PPI-gifts (banks and non-banks) have the option of offering interoperability. The interoperability guidelines published by video notification dated May 19, 2021 are now part of the MD PPI.
C. Security measures:
- Emptying the MD PPI, RBI has also introduced important security measures to ensure the safety of PPI holders. PPI issuers must disclose all material terms and conditions to PPI holders, including details of fees and charges associated with the expiration period.
- An issuer must have two-factor authentication for all wallet and cash withdrawal transactions.
- The PPI Issuer should put in place a formal and publicized framework for resolving customer grievances, including the designation of a nodal agent to handle customer complaints or grievances, escalation matrix, and turnaround times. complaint resolution.
- In addition to alerts to the PPI holder regarding debit / credit transactions, the available / remaining balance in the PPI, MD PPI now stipulates that PPI issuers must send alerts to the PPI holder in the event of offline transactions as well.
D. Other additions:
- For the purpose of money pooling, issuers of non-bank PPIs are required to maintain the unpaid balance in an escrow account with any intended commercial bank, and issuers of non-bank PPIs that are members of the payment systems Centralized Operators operated by RBI must maintain an Account with RBI.
- PPI issuers are now required to submit a due diligence report, in addition to the satisfactory system audit report, and equity certificate, in order to obtain the certificate of authorization under the MD PPI.
- With the consent of the PPI holder, funds can be transferred to the source account in the event of a PPI donation.
Digital payment methods were already an extremely important way to make day-to-day payments, until the pandemic hit the world and increased our dependence on these payment methods. RBI identified PPIs as one of the primary methods of paying and withdrawing cash and released the first set of PPI guidelines in 2017. See the last major directives of 2021, RBI made changes to these directives with the aim of harmonizing the process of issuing and using PPIs and ensuring the interoperability of wallet and card-based PPIs with the systems of payment identified.
Although the new general guidelines further liberalized the framework for the issuance and operation of PPIs by banks and non-bank institutions, but at the same time, the RBI also ensured that the use of PPIs be safe and secure by introducing security measures involving a two-factor system. Authentication and alert messages to the PPI holder relating to any transaction, as well as the introduction of provisions relating to customer protection and the grievance framework, in order to ensure transparency and awareness of PPI users.