Prepaid Payment Instruments or PPI are methods which facilitates the purchase of a good or product against the value stored on such instruments (smart cards, magnetic stripe cards, mobile accounts, online wallets etc.) The value stored inside these instruments represents the value paid by the customer which is accessed from the customer’s prepaid account.
PPI’s are further classified as
- Closed System – Issued by a person to purchase a good or service from an entity.
- Semi-Closed System – They are only redeemable at select identified contracted merchants
- Semi-Open System – Used to purchase goods or service by any card accepting merchant
- Open System – Used to purchase goods or service permitting cash withdrawal at ATMs
- Mobile Prepaid – Prepaid talk time instruments issued by mobile service providers
Vision for financial services
With a vast segment of the Indian financial market being underserved, Reserve Bank of India decided to create specific financial services that catered to this market efficiently. Of the 3 services started by RBI, the first is PPI followed by Payments bank and small finance banks.
During February 2017, RBI released a circular with new guidelines to place higher emphasis on safety, security and selective player participation for PPI. Few requirements cited in the circular are:
- Separate login for mobile wallet
- Cooling period in the adding of a beneficiary
- Restriction on multiple attempts
- Timeout feature in case of inactivity by the user
- Conversion of light KYC accounts to full.
But RBI’s circular has caused concern among mobile wallet players. According to them, converting light KYC accounts to full would require them to ask the user for more KYC documentation, complicating the process. On the other hand, it’s much easier for banks to operate their banking apps as they already contain updated KYCs of their customers; giving them a better opportunity to broaden their reach into the mobile wallet domain.