Prepaid Payment Instruments (PPIs): Do you know about Prepaid Payment Instruments (PPIs)? What are the various types of PPIs? What is the limit under PPIs? If you know then just go this post for a quick revision. If you don’t then read this post thoroughly.

What are Prepaid Payment Instruments (PPIs)

To understand PPI you can understand it by breaking the three terms Prepaid + Payment + Instrument.

It is prepaid – Money is preloaded in such instruments for payment.

Payment Medium – These are a medium for payment for the purchase of goods and services.

Instrument of payment- These are a payment instrument and can be card or wallets.

So basically PPIs are instruments (card/wallets) that are preloaded with money/value and can be used for the purchase of goods and services against this money/value.

Who regulates PPIs

These Prepaid Payment Instruments are licensed and regulated by the Reserve Bank of India under the Section 18 read with Section 10(2) of the Payment and Settlement Systems Act, 2007 (PSS Act, 2007).

Who can issue Prepaid Payment Instruments (PPIs)

To issue a repaid Instrument there is a pre-requirement that:

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.
PPI issuer is an entity operating/participating in a payment system for issuing PPIs to individuals/organizations.

Holder of PPI: The person who obtains the Prepaid Payment Instruments from the PPI issuer and further uses it for the purchase of goods and services is the holder of the PPI.

Types of Prepaid Payment Instruments (PPIs)

Based on the issuer and end use of the Prepaid Payment Instrument, PPI can be classified into three types:

(i) Closed System PPIs

(ii) Semi-closed System PPIs, and

(iii) Open System PPIs.

We will first give an example of each and then define it. This will help you in grasping the concept in an easy way.

Closed System PPIs

Example of Closed System PPI- Flipkart Gift Cards, Amazon Gift Cards or any other brand-specific gift card

Definition: Closed System PPIs are issued by an entity to a person/organisation to enable purchase from that entity only. Example: Using Amazon Gift card you can shop only on Amazon, you cannot shop with it on Flipkart. Hence the name Closed system signifies that it is a closed payment instrument i.e the brand that gives you the money in the PPIs allows you to use it only on its brand i.ea closed system.

Features of Closed System PPI:

It does not permit cash withdrawal
It cannot be used for payments or settlement for third-party services
Such instruments are not classified as payment system requiring approval/authorisation by the RBI.

Semi-closed System PPIs

Example of Semi-closed System PPIs: e-wallets like Paytm, Oxigen and Mobikwik.

Definition: Semi-closed PPIs are issues by the entity for the purchase of goods and services at a group of clearly identified merchant locations/establishments which have a specific contract with the issuer entity.

Who can issue Semi-Closed System PPIs? – Banks (approved by RBI) and non-banks (authorized by RBI)

Features of Semi-Closed System PPIs?

These instruments do not permit cash withdrawal.
Can be used to transfer the value from one instrument to another. Like you can send money from one paytm wallet to another.

Open System PPIs

Example of Open System PPI: All cards like Visa, MasterCard or Rupay card issued by Banks

Definition: These PPIs can be issued only by banks and can be used for the purchase of goods and services anywhere. Cash Withdrawal is also allowed in this at ATMs, PoS and Business Correspondents.

Limits in PPIs

Cash loading to PPIs shall be limited to Rs.50,000/- per month subject to the overall limit of the PPI.

Credit Limit in Semi-Closed Wallets (non-KYC)

The amount loaded in such PPIs during any month shall not exceed Rs.10,000/-
The total amount loaded during the financial year shall not exceed Rs.1,00,000/-.
The amount outstanding at any point of time in such PPIs shall not exceed Rs.10,000/-
The total amount debited from such PPIs during any given month shall not exceed Rs. 10,000/-.

Credit Limit in Semi-Closed Wallets (KYC Compliant)

The amount outstanding shall not exceed Rs.1,00,000/- at any point of time.
KYC Compliant Semi-Closed Wallets can add beneficiaries for fund transfer. In case of such pre-registered beneficiaries, the fund transfer limit shall not exceed Rs.1,00,000/- per month per beneficiary. The fund transfer limits for all other cases shall be restricted to Rs.10,000/- per month.

Open system PPIs (KYC Compliant)

The amount outstanding shall not exceed Rs.1,00,000/- at any point of time.
KYC Compliant Open PPIs can add beneficiaries for fund transfer. In case of such pre-registered beneficiaries, the fund transfer limit shall not exceed Rs.1,00,000/- per month per beneficiary. The fund transfer limits for all other cases shall be restricted to Rs.10,000/- per month.

Limit on Gift instruments

Banks and non-bank entities can issue prepaid gift instruments to its customers subject to the following conditions:
The maximum value of each prepaid gift instrument shall not exceed Rs.10,000/-.
These instruments cannot be reloadable.
Fund transfer is not permitted.

PPIs for Mass Transit Systems (PPI-MTS)

These are semi-closed PPIs and issued by mass transit system operators.
Maximum value outstanding in PPI cannot exceed the limit of Rs. 3,000/- at any point of time.
Are reloadable in nature

Banking and Financial Awareness: Prepaid Payment Instruments (PPIs)