Prepaid Payment Instrument replacing cash to digital money in Pocket: New Digital Pocket to All
The author is a member of the Institute of Chartered Accountants of India (ICAI). He can be reached at thakurisubash2017@gmail.com and eboard@icai.in.
1. Operational Security & Current Industry Status
Various security form is built to protect it from loss or mis-use to the extent possible but threat is universal, do remain. It’s just about comparative leverage of secured and safety measures to proceed the transaction fairly across the terminal and PPI has proved fair enough at security and safety point in comparison to other means and modes of financial transaction point.
Highlights & Current Status
Statistically 37 entities are operating as non-bank Payment Service Provider with its unique Prepaid Payment Instrument in forms of Card, Webpage or Mobile App licensed under flagship Payment and Settlement System Act, 2007 read with regulation, 2008 and monitored, managed and guided by Department of Payment and Settlement Systems (secretary office of Board for Regulation and Supervision of Payment and Settlement Systems) under Reserve Bank of India (RBI).
Beside this, 57 Banks has license to issue, manage and operate Prepaid Payment Instrument for public at large which include almost all type of Banks available in India like public sector bank, private commercial bank, foreign bank, payments bank, Cooperative Bank, Small Finance Bank.
2. Historical Evolution: Early Birds & Recent Non-Bank Entrants
Table 1: Early Bird License Holders (Existing till date)
The early bird license holder and exist till date as Prepaid Payment Instrument license holder are:
| S. No | Name of Entity | PPI | Remarks |
|---|---|---|---|
| 1 | GI Technology Pvt Ltd Chennai | I-Cash (in Card Form) | Prepaid Card used by various individual to consume travel services, mobile re-charge and Utility Bill Payments. |
| 2 | Ebix Payment Service Pvt Ltd (formerly Itz Cash Card Pvt Ltd) Mumbai | EBIXCASH | Co-branded prepaid card |
| 3@ | Muthoot Vehicle & Asset Finance Ltd Kochi | Muthoot Money (in Wallet Form) | Web and mobile wallet to store money value |
| 4 | Sodexo SVC India Pvt Ltd Mumbai | Sodexo Card | Meal Voucher, Gift Card |
| 5 | Unimoni Financial Services Limited (formerly UAE Exchange & Financial Services Ltd) | Unimoni (In Mobile Wallet form) | Money Transfer Services via Mobile Wallet Unimoni and other retail payment solution provider |
@ Muthoot Vehicle & Asset Finance Ltd, PPI license is ceased by RBI since December 31, 2021 along with Eko India Financial Services Private Limited.
- Few early birds in this space as PPI are not included on above table, as these players has now enhanced themselves as Payment Bank. For example, One97 Communication Limited (Paytm), Airtel M Commerce Services Ltd (Airtel Money), Fino Paytech Ltd (Fino Pay), Idea Mobile Commerce Services Ltd (Idea Money), Reliance Payment Solution Limited (Jio Money). Paytm being first entrant in PPI, has also been first Payment Bank in India.
- ZipCash Card Services Private Limited has received the license in early bird space as per my write up in 2009 though not included on above table due to the company been later on acquired and run by Ola Financial Services Pvt Ltd. Then the product zipcash coupon is replaced by PPI “Ola Money”.
Table 2: Latest Non-Bank Entrants as Prepaid Payment Instrument License Holders
Further the latest entry on this segment as non-bank Payment Service Provider as Prepaid Payment Instrument license holder are:
| S. No | Name of Entity | PPI License Date | Remarks |
|---|---|---|---|
| 1 | Bajaj Finance Ltd Pune | 04.05.2021 | Voluntary surrender on 20th Feb, 2018 and again applied for Authorization for Issuance and Operation of PPIs. Prepaid Card Business for Shopping. The license is approved on perpetual basis without any cut off/renewal date. |
| 2 | Eroute Technologies Pvt Ltd Noida | 10.05.2021 | Prepaid Card business “OmniCard” and offline payment solution provider with “HindPay” – UPI based Solution. The license is approved on perpetual basis without any cut-off or renewal date. |
| 3 | Euronet Services India Pvt Ltd Thane | 03.08.2021 | Wallet business – PPI, working primarily on money transfer business across globe under brand of Euronet Worldwide, as India entity. The license is approved on perpetual basis without any cut-off or renewal date. |
| 4 | Razorpay Technologies Private Limited | 25.10.2021 | PPI |
a) Non-bank operator list: https://www.rbi.org.in/Scripts/PublicationsView.aspx?id=12043
b) Bank operator list: https://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=2491
3. Market Capture & Payment Service Provider Leader Chart
Moving ahead, as far as market capture and payment service provider leader chart, commonly we can find the following information at market popular, more users and good market capture on this vertical:
| Rank | Name of Entity | Brand | Business Lines | Users |
|---|---|---|---|---|
| 1 | Phonepe Private India (Formerly FX Mart Pvt Ltd) | PhonePe | Digital Mobile App Wallet for Payment Solution | 10 Cr + |
| 2 | Amazon Pay (India) Private Limited (Formerly Amazon Online Distribution Services Pvt Ltd) | Amazon Pay Balance: Money | Retail Payment Solution via Mobile App | 10 Cr + |
| 3 | One Mobikwik Systems Pvt Ltd | Mobikwik Wallet | Retail Payment Solution Mobile App | 5 Cr + |
| 4# | PayU Payments Pvt Ltd | PayU | Retail Payment Solution Provider in addition to Gateway | 5 L + |
| 5# | Pine Labs Pvt Ltd | Pine Labs | POS Machine/Card Business | 1 L + |
4# Entity is known for Gateway business; PPI platform is less exploring but popular in users and entity is expanding the PPI slowly gradually in the year to come.
5# Entity is known more for Point of Sale (POS) terminal set up (last mile transaction) with good merchant user base in addition to card business however on presence of digital app users, entity is expanding slowly and gradually.
4. Regulatory Evolution & Decoding Master Direction on PPI (27th Aug, 2021)
Before development of policy guidelines by regulator are just brain storming session of all available intellects in country as far as the adoption of technology-based payment facilitation in country or not, participating the various stakeholders to participate and provide the inputs on drafting and development of regulatory framework as far as implantation phases are concerned. So, to harmonized the capitalization of timeline on development of PPI as far as regulatory framework is subject, the cut-off date can be taken off from the first cut of master direction issued dated 29th April, 2009.
The implemented direction is named as “Guidelines for issuance and operation of Prepaid Payment Instruments in India” is first stone on the development of PPI segment in Country. The very initial stone on the development of PPI is placed on this day. And over time, via experience and experiment, the first guidelines are been drastically revamped and redrafted altogether and during phase, the Reserve Bank of India on very recent publication issued Master Direction on Prepaid Payment Instruments (PPIs) dated 27th Aug, 2021. The recent direction has drastically changed the entire orientation and approach of PPI in comparison to earlier one.
Slowly gradually regulator is making all PPI to participate in main stream of Banking Channel in India, precisely Payment Facilitation is Concern. Over decades timeframe, in light of development in the field of PPI, Digital e-commerce, experience gained and with a view to foster innovation and competition, ensure safety and security, customer protection etc. state has got commendable state of art for payment facilitation as on date.
Decoding the Fresh Master Direction on PPI (dated 27th Aug, 2021)
Since 2009 to 2020, been decades above with wide range of experience and experiment, regulator RBI come up with new fresh Master Direction on Prepaid Payment Instrument (PPI) dated 27th Aug, 2021 with immediate effect.
Extract of Key Transformations:
- a) Definition and category of name with earlier one is changed;
- b) Widen the scope/function/features of PPI;
- c) Consolidated till date circular in one master direction for PPI;
- d) Emphasis on interoperability of PPI;
- e) Enhance and improvised security, fraud prevention and risk management framework implementation;
- f) More focused on customer grievance and its handling on time;
- g) Know Your Customer (KYC) is centre point;
- h) Mandate of implementation on interoperability of PPI using NPCI Hero Product UPI Interface.
5. Categories, Definitions & Scope Comparison: Small PPI vs. Full-KYC PPI
a) Closed PPI
PPI which does not required approval/authorization from Reserve Bank of India (RBI). It is instrument issued by an entity or organization for facilitating the purchase of goods and services of that entity or organization only i.e. no involvement of third party in transaction. It does not permit cash withdrawal. For example, Rapido App, Big bazar Card etc.
b) Small PPI
It is instrument used for payment or settlement for third party services. It can be issued by banks and non-banks entity after obtaining minimum details of PPI holder, is choice of applicant either to go for Small PPI or Full KYC PPI. It is used only for purchase of goods and services. Fund transfer and cash withdrawal is not permitted from it. For Say, Amazon pay balance.
c) Full KYC PPI
It is more advanced PPI in comparison to earlier two, due its more features and speciality. It can be issued by banks and non-bank entity. PPI holder first complete the Know Your Customer (KYC) with minimum details to activate the PPI, only after PPI holder can use such instrument for purchase of goods and services, fund transfer or cash withdrawal.
Comprehensive Scope Comparison: Small PPI vs. Full KYC PPI
This is not differentiating factor of both PPIs in fact, its scope of PPIs presented in tabular format with similarities and differences altogether:
| Feature / Dimension | Small PPI | Full KYC PPI |
|---|---|---|
| Permitted Usage | Use for purchase of Goods and Services. | Use for Purchase of Goods and Services, fund transfer or cash withdrawal. |
| Verification / KYC Requirements | Minimum details of PPI holder i.e. mobile number verified with one-time password and self-declaration of name and unique identity number of any officially valid document (OVD). | Video-based Customer Identification Process (V-CIP) with minimum details in addition to OVD is required to open PPI by holder. |
| Types / Loading Classification | Small PPI is of two types on the basis of loading facility i.e. Small PPI with cash loading facility (i.e. Bank and Cash, both acceptable) and with no cash loading facility (i.e. Loading/reloading from Bank Account, credit card, full KYC PPI). | No further classification on Full KYC PPI unlike Small PPI. Loading/reloading of PPI is from any source either cash, bank account, credit card etc. |
| Reloadability & Issuance Form | Reloadable in nature and issued only in electronic form. | Reloadable in Nature and Issued only in Electronic Form. |
| Amount Loading & Balance Caps |
Amount Loading Cap in this PPI: a) It shall not exceed INR 10K during any month and 120k annually in financial year; b) Amount outstanding at any point of time in such PPI shall not exceed INR 10K; c) Total amount debited from such PPI during any month shall not exceed INR 10K. |
Amount Loading Cap: Amount outstanding shall not exceed INR 200K at any point of time. |
| Conversion Period & Re-issuance |
Such PPI shall be converted into Full KYC PPIs within a period of 24 Months from date of issue. Failure to do so, fail entity to add more users however existing user can use the value stored on PPI. PPI shall not be issued to the same user in future using the same mobile number and same minimum details. |
Concept of pre-registered beneficiaries is there with addition of bank account details, details of PPIs of same issuer etc of it in order to facilitate such beneficiaries with fund transfer not exceeding INR 200K per month per beneficiary. In case of other scenario fund transfer limit shall be restricted to INR 10K per month. As special features unlike earlier fund transfer is permitted to other PPIs, Debit and Credit Cards as per limits given above. |
| Cash Withdrawal Limits | Not Permitted. |
Talking about cash withdrawal limit then first set to check is either the PPI issued by Bank or Non-Bank: • Bank Issued PPI: Cash withdrawal at PoS device is subject to limit of INR 2K per transaction within an overall monthly limit of INR 10K across all locations. • Non-Bank Issued PPIs: Cash withdrawal shall be permitted up to maximum limit of INR 2K per transaction within an overall monthly limit of INR 10K per PPI across all channels either its agents, ATMs or PoS devices. |
| Closure & Transfer of Proceeds | Option to close PPI is always available to User and amount shall transfer to source account. In other way closure proceeds, if any can be transferred to Bank Account after complying with KYC requirements of PPI holder. | Option to close PPI is always available and balance transfer to pre-designated bank account of PPI holder. |
| Feature Communication to Holder | Features of PPI shall be communicated to PPI holder by SMS/e-mail at the time of issuance of the PPI before the first loading of funds. | Features of PPI shall be communicated to PPI holder before first loading of funds. |
Over and above, Regulator Reserve Bank of India (RBI) read with Payment and Settlement System Act, 2007 (amended from time to time) acknowledge the other two special category PPI i.e. Gift Card and Mass Transit System.
6. Authorization Process & Regulatory Compliance Architecture
6.1 Authorization Process
Every eligible entity should make an application to Department of Payment and Settlement System (DPSS), Central Office, RBI, Mumbai. If applicant company is already regulated by any existing regulator then no objection certificate is most to obtain and attach with the application for authorization.
“If applicant company is already regulated by any existing regulator, then no objection certificate is a must to obtain and attach with the application for authorisation.”
Applicant shall be company incorporated in India and registered under the Companies Act, 2013/1956 which is required to maintain net owned fund of INR 5 Cr at the time of application and thereafter within closure of three financial year, the minimum net owned fund has to be INR 15 Cr.
Objective of applicant entity should foster the objectives of PPI issuance.
6.2 Key Regulatory Mandates for PPIs
- AML/CFT Framework: Adoption of Know Your Customer (KYC) guidelines under the Anti-Money Laundering (AML)/Combating Financing of Terrorism (CFT) as per the provision of Prevention of Money Laundering Act, 2002 (PMLA) guided by RBI Master Direction on KYC.
- 10-Year Log Maintenance & FIU-IND Reporting: As a PPI issuer, it is required to keep a log of all transactions involving PPIs for at least ten years. It would also submit Suspicious Transaction Reports (STRs) to India’s Financial Intelligence Unit (FIU-IND).
- Co-Branding Approvals: Non-bank PPI issuer shall seek one-time approval from Department if desirous of issuing co-branded PPIs.
- Annual System Audit Report (SAR): Non-bank PPI issuer shall submit a System Audit Report (SAR), including cyber security audit conducted by Computer Emergency Response Team (CERT)-IN empanelled auditor, within two months of the close of its financial year.
7. Cross-Border Transactions & Regulatory Reporting Requirements
7.1 PPIs as Cross-Border Transaction Instruments
“PPIs are not allowed to make or facilitate or transfer any cross-border outward fund under Liberalised Remittances Schemes.”
Participation of PPIs on cross border transaction is very limited and prohibited. As far as outward transaction is concern, first up all PPI is required to be full KYC and same been issued by Banks having AD-I License permitted only for permissible current account transaction under Foreign Exchange Management Act, 1999 viz. purchase of goods and services.
PPI issuer shall enable the facility of cross-border outward transaction only on explicit request of PPI holder and shall apply per transaction limit not exceeding INR 10k, while per month limit shall not exceed INR 50K. PPIs are not allowed to make or facilitate or transfer any cross-border outward fund under Liberalised Remittances Schemes.
However, under the RBI’s Money Transfer Service Scheme (MTSS), banks and non-bank PPI issuers engaged as Indian agents of licenced overseas principals would be permitted to issue complete KYC PPIs to beneficiaries of inbound remittance. Such PPIs will be issued as per MTSS guidelines established by the Foreign Exchange Department (FED) of RBI. Even for inward remittances, only up to INR 50k from an individual can be loaded/reloaded in complete KYC PPIs issued to beneficiaries. Amounts in excess of INR 50k must be credited to the beneficiary’s bank account.
7.2 Comprehensive Reporting Requirements
“PPI issue has responsibility and prescribed set of reporting and format given on guidelines. Precisely PPI issuer has to submit the Net-worth certificate and PPI statistics.”
PPI issue has responsibility and prescribed set of reporting and format given on guidelines. Precisely PPI issuer has to submit the Net-worth certificate and PPI statistics.
Further PPI has to submit the auditor certificate on maintenance of balance in Escrow Account. In addition to above, the PPI issuer shall maintain and report PPI customer grievance report.
These are RBI’s specific reporting requirement on given interval however over and above of it, the entity is required to submit its audited financial statement and auditor report thereon.
8. Conclusion & The Future of Indian Digital Payments
“PPI is making huge presence as far as finger tips payment is concern and making country less cash based and more digital cash carry model with ground base of India’s Banking and Financial Service Industry.”
PPI has its decades long history with ups and down, complexities, failure and improvisation day in day out to become state of an art for making payment to various vendor on finger tips. In quite advance and appreciated instruments as on date in order to promote with better user experience as far as payment is concern to fulfil the buyer obligation to make payment on purchase of goods and services, remittance and financial services.
More appreciated news on PPI segment is altogether inclusion of PPI issuer in Centralized Payment System of India i.e. RTGS and NEFT as well as providing the cash withdrawal facility at location either its from PoS, agents or else.
In fact, PPI is making huge presence as far as finger tips payment is concern and making country less cash based and more digital cash carry model with ground base of India’s Banking and Financial Service Industry. It is worthy to understand and explore the India’s Banking System in your pocket/mobile friendly instrument to leverage the speedy cash deliver unlike any others in earlier scenario.
Further new and innovative idea and technology are been working to explore more on more in this segment with supervision of RBI either its retail payments, cross border transaction or MSME lending, the process is ongoing and in near future there will much more enhancing mode of instrument for multiple payment facilitation and so on with an app, web or offline or card based.