Policy Brief: Highlights of the new type of semi-closed PPI introduced by RBI
On 24 December, the Reserve Bank of India (RBI) released the specifications of the new type of semi-closed PPI. The Central Bank said that the directive is issued under Section 18 read with Section 10(2) of Payment and Settlement Systems Act, 2007 and is effective from the date of issuance of the circular.
Accordingly, the Master Direction on Issuance and Operation of Prepaid Payment Instruments (PPI-MD) have been modified to introduce this new type of PPI, it added.
On 5 December, RBI had proposed to introduce a new type of PPI which can be used only for purchase of goods and services up to a limit of ₹10,000. It had also announced revision of P2P (peer-to-peer) lending limits and issuance of on-tap licenses for small finance banks. These were a part of various developmental and regulatory policy measures for strengthening regulation and supervision; broadening and deepening of financial markets; and improving payment and settlement systems, which the Central Bank announced in its Statement on Developmental and Regulatory Policies.
Currently, Semi-closed PPIs are used for purchase of goods and services, including financial services, remittance facilities, etc., at a group of clearly identified merchant locations or establishments, which have a specific contract with the issuer (or contract through a payment aggregator/payment gateway) to accept the PPIs as payment instruments. These instruments do not permit cash withdrawal.
Key features of the newly introduced PPI:
- Such PPIs shall be issued by bank and non-bank PPI Issuers after obtaining minimum details of the PPI holder.
- The minimum details shall necessarily 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 ‘Master Direction – Know Your Customer (KYC) Direction, 2016’ issued by Department of Regulation, Reserve Bank of India, as amended from time to time.
- These PPIs shall be reloadable in nature and issued in card or electronic form. Loading / reloading shall be only from a bank account.
- 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.
- These PPIs shall be used only for purchase of goods and services and not for funds transfer.
- PPI issuers shall provide an option to close the PPI at any time and also allow to transfer the funds ‘back to source’ (payment source from where the PPI was loaded) at the time of closure.
- The features of such PPIs shall 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.
- The minimum detail PPIs existing as on the date of the circular can be converted to the above type of PPI, if desired by the PPI holder, the directive by the Central Bank said.
Effectively, the move by RBI is the re-introduction of small value cashless payments with minimum KYC, albeit a stricter version. This is definitely a positive move for the fintech industry, especially for PPI issuers as this is expected to boost small value digital payments in the country.
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