2019 – Posted in: Daily News

PRE-PAID PAYMENT INSTRUMENTS

For: Preliminary & Mains
Topics covered: PPI, Types, Objectives, Issuer

News Flash

The Reserve Bank of India has imposed monetary penalty on five pre-paid payment instrument issuers, for violating regulatory guidelines.

Panelty has been imposed on Vodafone m-pesa, PhonePe, Y-cash Software solutions and G.I. Technology Private Ltd.
In a separate statement, the central bank had imposed a penalty on Western Union Financial Services Inc., USA., and on MoneyGram Payment Systems Inc, USA, for non-compliance of regulatory guidelines. The penalities on both had been imposed under the provisions of the Payment and Settlement Systems Act, 2007, for compounding of the contravention.
RBI also imposed a penalty on private sector lender Yes Bank for violation of norms pertaining to issuance and operations of PPIs.

Background

As per RBI directions, PPI issuers were required to complete the KYC process by February 28, 2019. PPIs or mobile wallets were mandated by the banking regulator in October 2017 to capture all information required under the know-your-customer (KYC) guidelines by end February.

Prepaid Payment Instruments

Prepaid payment instruments (PPIs) come with a pre-loaded value and in some cases a pre-defined purpose of payment. They facilitate the purchase of goods and services as well as inter-personal remittance transactions such as sending money to a friend or a family member. These payment instruments are licensed and regulated by the Reserve Bank of India.

PPIs that can be issued in the country are classified under three types viz. (i) Closed System PPIs, (ii) Semi-closed System PPIs, and (iii) Open System PPIs.

Types of PPI

(i) Closed System PPIs

These PPIs are issued by an entity for facilitating the purchase of goods and services from that entity only and do not permit cash withdrawal. As these instruments cannot be used for payments or settlement for third party services, the issuance and operation of such instruments is not classified as payment system requiring approval / authorisation by the RBI.

(ii) Semi-closed System PPIs

These PPIs are issued by banks (approved by RBI) and non-banks (authorized by RBI) for purchase of goods and services, including financial services, remittance facilities, etc., at a group of clearly identified merchant locations / establishments which have a specific contract with the issuer (or contract through a payment aggregator / payment gateway) to accept the PPIs as payment instruments. These instruments do not permit cash withdrawal, irrespective of whether they are issued by banks or non-banks.

(iii) Open System PPIs

These PPIs are issued only by banks (approved by RBI) and are used at any merchant for purchase of goods and services, including financial services, remittance facilities, etc. Cash withdrawal at ATMs / Points of Sale (PoS) terminals / Business Correspondents (BCs) are also allowed through such PPIs.

Who can issue and operate PPIs in India?

A company incorporated in India and registered under the Companies Act, 1956 / Companies Act, 2013 can issue and operate PPIs after receiving authorisation from RBI.

In what form can a PPI be issued?

The PPIs may be issued as cards, wallets, and any such form / instrument which can be used to access the PPI and to use the amount therein. PPIs in the form of paper vouchers shall no longer be issued.

Source: The Hindu

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