The Ministry of Electronics and Information Technology, on 8 March 2017, released the draft Information Technology (Security of Prepaid Payment Instruments) Rules, 2017 (Draft Rules), under the Information Technology Act, 2000 (IT Act), for public comments.
The Draft Rules seek to provide a framework of security practices for ‘electronic prepaid payment instruments’, in view of the Government’s recent efforts to promote a cashless economy post demonetisation and the resulting boost to digital payment systems in India.
According to the definition provided by the Reserve Bank of India (RBI), prepaid payment instruments or “PPIs” as they are commonly known, are “payment instruments that facilitate purchase of goods and services, including funds transfer, against the value stored on such instruments”. PPIs are mainly governed by the provisions of the Payments and Settlement Act, 2007, and related guidelines and master circulars of RBI.
PPIs may be in physical or electronic form. Examples of physical PPIs include smart cards and payment vouchers, while mobile wallets and internet banking are examples of electronic PPIs. Unlike physical PPIs, in electronic PPIs, the payment account is accessed through electronic means.
Further, since electronic PPIs are digital/electronic in nature, they are additionally governed by the IT Act and the Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules, 2011 (IT Rules), regarding cyber security and data privacy.
Despite the existing legal framework, owing to the inherent vulnerability of computer systems and mobile devices and the current surge in use of electronic PPIs, the Government has now sought to put in place additional mechanisms to augment the security of such digital payments. The Draft Rules have been issued with this perspective and applies largely to electronic PPIs.
Draft Rules and e-PPI Issuers
Electronic PPI issuer or e-PPI Issuer has been defined under the Draft Rules “as a person operating a payment system issuing pre-paid payment instruments to individuals / organizations … where the payment account is accessed through electronic means”.
Under the Draft Rules, certain obligations in addition to those under the IT Rules are cast upon the e-PPI Issuer which are as follows:
Security and confidentiality of financial transactions and consumer data is a key element in enhancing consumer confidence in digital transactions and making the drive towards cashless economy a success. The Draft Rules seem to be a step in that direction, but it is hoped that clarity on certain aspects related to its applicability will be properly addressed in the final version.
Additionally, the Draft Rules do not propose the minimum level of security and data protection measures that e-PPI issuers must pass on contractually to their merchants. Unless appropriately modified, it may result in incongruity in the practices followed by e-PPI Issuers and merchants and a threat to the information available with merchants.
We look forward to the final version of the rules in relation to security of e-PPIs and will share an update on it once published.