The Reserve Bank of India (RBI) has vide its notification dated December 24, 2019, introduced a new kind of semi-closed Prepaid Instrument (PPI) which can only be loaded from a bank account and used for purchase of goods and services and not for funds transfer. This PPI has been introduced in furtherance of Statement on Developmental and Regulatory Policies issued by the RBI. The following write-up intends to provide a brief understanding of the features of this instrument and carry out a comparative analysis of features of existing kinds of PPIs and the newly introduced PPI.
The features of the newly introduced PPIs has to be clearly communicated to the PPI holder by SMS / e-mail / post or by any other means at the time of issuance of the PPI / before the first loading of funds. Following shall be the features of the newly introduced PPI:
- Issuer can be banks or non-banks.
- The PPI shall be issued on obtaining minimum details, which shall include a mobile number verified with One Time Pin (OTP) and a self-declaration of name and unique identity / identification number of any ‘mandatory document’ or ‘officially valid document’ (OVD) listed in the KYC Direction.
- The new PPI shall not require the issuer to carry out the Customer Due Diligence (CDD) process, as provided in the Master Direction – Know Your Customer (KYC) Direction (‘KYC Directions).
- The amount loaded in such PPIs during any month shall not exceed ₹ 10,000 and the total amount loaded during the financial year shall not exceed ₹ 1,20,000.
- The amount outstanding at any point of time in such PPIs shall not exceed ₹ 10,000.
- Issued as a card or in electronic form.
- The PPIs shall be reloadable in nature. Reloading shall be from a bank account only.
- Shall be used only for purchase of goods and services and not for funds transfer.
- Holder shall have an option to close the PPI at any time and the outstanding balance on the date of closure shall be allowed to be transferred ‘back to source.’
The Master Direction on Issuance and Operation of Prepaid Payment Instruments contain provisions for two other kinds of semi-closed PPIs having transaction limit of ₹10,000. The features of these PPIs seem largely similar. However, there are certain differences as shown in the following table:
|Basis||PPIs upto ₹ 10,000/- by accepting minimum details of the PPI holder
|PPIs upto ₹ 1,00,000/- after completing KYC of the PPI holder
|PPIs upto ₹ 10,000/- with loading only from bank account
|Issuer||Banks and non-banks||Banks and non-banks||Banks and non-banks|
|PPI holder identification procedure||Based on minimum details (mobile number verified with One Time Pin (OTP) and self-declaration of name and unique identification number of any of the officially valid document (OVD) as per PML Rules 2005)||KYC procedure as provided in KYC Directions||Based on minimum details (mobile number verified with One Time Pin (OTP) and a self-declaration of name and unique identity / identification number of any ‘mandatory document’ or OVD as per KYC Directions|
|Reloading||Allowed||Allowed||Allowed (only from a bank account)|
|Form||Electronic||Electronic||Card or electronic|
|Limit on outstanding balance||₹ 10,000||₹ 1,00,000||₹ 10,000|
|Limit on reloading||₹ 10,000 per month and ₹ 1,00,000 in the entire financial year||Within the overall PPI limit||₹ 10,000 per month and ₹ 1,20,000 during a financial year|
|Transaction limits||₹ 10,000 per month||₹ 1,00,000 per month in case of pre-registered beneficiaries and ₹ 10,000 per month in all other cases||₹ 10,000 per month|
|Utilisation of amount||Purchase of goods and services||Purchase of goods and services and transfer to his bank account or ‘back to source’||Purchase of goods and services|
|Conversion||Compulsorily be converted into Type 2 PPIs (KYC compliant) within 24 months from the date of issue||No provisions for conversion||Type 1 PPIs maybe converted to Type 3, if desired by the holder|
|Restriction on issuance to single person||Cannot be issued to same person using the same mobile number and same minimum details more than once||No such provision||No such provision|
|Closure of PPI||Holder to have option to close and transfer the outstanding balance to his bank account or ‘back to source’||Holder to have option to close and transfer the outstanding balance to his bank account or ‘back to source’ or to other PPIs of the holder||Holder to have option to close and transfer the outstanding balance ‘back to source’ (i.e. the bank account of the holder only)|
|Pre-registered Beneficiary||Facility not available||Facility available||Facility not available|
THE UPPER HAND
Based on the aforesaid comparative analysis, it is clear that for issuance of the newly introduced PPI or the Type 3 PPI, the issuer is not required to undertake the CDD process as provided in the KYC Directions. Only authentication through mobile number and OTP supplemented with a self-declaration regarding of details provided in the OVD shall suffice. This implies that the issuer shall not be required to “Originally See and Verify” the KYC documents submitted by the customer. This would result into digitisation of the entire transaction process and cost efficiency for the issuer.
Compared to the other 2 kinds of PPIs, one which requires carrying out of the KYC process prescribed in the KYC Directions and the other, which can be issued without carrying out the prescribed KYC process but has to be converted into Type 2 PPI within 24 months, this new PPI can be a good shot aiming at ease of business and digital payments upto a certain transaction limit.
The newly issued PPI will ensure seamless flow of the transaction. As compared to other PPIs, it will be easier to obtain such PPIs. Further, the limitations such as reloading only from the bank account, restriction of transfer of money from PPI etc. are some factors that shall regulate the usage of such PPIs. These may, however, pull back their acceptance in the digital payments space.
 “officially valid document” means the passport, the driving licence, the Permanent Account Number (PAN) Card, the Voter’s Identity Card issued by the Election Commission of India or any other document as may be required by the banking company, or financial institution or intermediary
 Permanent Account Number (PAN)
 “Officially Valid Document” (OVD) means the passport, the driving licence, proof of possession of Aadhaar number, the Voter’s Identity Card issued by the Election Commission of India, job card issued by NREGA duly signed by an officer of the State Government and letter issued by the National Population Register containing details of name and address.
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