Introduction

The Reserve Bank of India (hereinafter referred to as “RBI”) has prepared new norms for protection of wallet users from fraudulent transactions, vide Circular RBI/DPSS/2017-18/58 dated October, 11, 2017.[1]

The Guidelines titled the Reserve Bank of India (Issuance and Operation of Prepaid Payment Instruments) Directions, 2017 (hereinafter referred to as the “Directions”) seek to authorize, regulate and supervise entities operating payment systems for issuance of Prepaid Payment Instruments (hereinafter referred to as “PPIs”) in the country. PPIs are payment instruments that facilitate purchase of goods and services, including financial services, remittance facilities, etc. against the value stored on such instruments.[2] PPIs can be issued as smart cardsmagnetic stripe cards, internet accounts, online wallets, mobile accounts, mobile wallets, paper vouchers and any such instruments used to access the prepaid amount.

Conversion to KYC compliant PPI

According the Directions, Bank and non-bank issuers of PPIs are permitted to issue PPIs after obtaining minimum details of the PPI holder which includes mobile number verified with One Time Pin (OTP) and self-declaration of name and unique identification number of official documents. However, the PPIs will be converted into KYC (Know Your Customer) compliant semi-closed PPIs within a period of 12 months from the date of issue of PPI, on the failure of which no further credit shall be allowed in such PPIs. All existing wallet users have to convert to the full KYC format by the end of this calendar year. 

Features of PPIs

These PPIs shall be reloadable in nature and issued only in electronic form, including cards. The maximum amount that can be loaded in PPIs cannot exceed INR 10,000 in any month and cannot exceed INR 1,00,000 in any financial year. Also, the total amount debited from such PPIs shall not exceed INR 10,000 in any given month.

The PPIs can be used only for purchase of goods and services. No funds may be transferred from such PPIs to bank accounts and also to PPIs of same / other issuers. Further, there is no separate limit on purchase of goods and services using PPIs and PPI issuer may decide limit for these purposes within the overall PPI limit.

Issuance of PPIs

Banks and non-bank entities have been issuing PPIs in India after obtaining necessary approval / authorization from RBI under the Payment and Settlement Systems Act, 2007 (hereinafter referred to as “PSS Act”). The Directions state that all non-bank entities seeking authorization from RBI under the PSS Act shall have a minimum positive net-worth of INR 5 crore as per the latest audited balance sheet at the time of submitting application for approval. Thereafter, by the end of the third financial year from the date of receiving final authorization from RBI, the entity shall have a minimum positive net-worth of INR 15 crore which shall be maintained at all times.

RBI has thus strengthened norms relating to PPIs by introducing provision of fulfilling completing KYC requirements, although entities have been given time to convince customers to complete KYC requirements.  Also, PPIs are now comprehended to be serious financial services as RBI has increased the eligibility criteria of entities seeking approval for authorization of PPIs.