Related Topic in KAS Prelims Syllabus:
Economy [Paper-II]: Structure of Indian Banking and Non- Banking Financial Institutions and reforms
- Reserve Bank of India (RBI) introduced a new type of semi-closed prepaid payment instrument (PPI), which can be used only for purchase of goods and services up to a limit of Rs 10,000.
- Money will be loaded or reloaded in the new PPI only from a bank account for making digital payments such as bill payments, merchant payments, etc.
- The new PPI could be issued on the basis of essential minimum details sourced from the customer.
- The central bank, in its monetary policy statement on December 5, 2019 had proposed to introduce a new type of PPI to give impetus to small-value digital payments as well as for enhanced user experience.
What is PPI?
- It is as an instrument that facilitates purchase of goods and services, including financial services, remittance facilities, etc., against the value stored on such instruments.
- These payment instruments are licensed and regulated by the Reserve Bank of India.
What are the various types of PPIs?
Presently, three types of PPIs are issued in the country – closed system PPIs, semi-closed system PPIs and open system PPIs – which can be issued in the form of cards and mobile wallets.
Closed System PPIs
- These PPIs are issued by an entity for facilitating the purchase of goods and services from that entity only and do not permit cash withdrawal.
- As these instruments cannot be used for payments or settlement for third party services, the issuance and operation of such instruments is not classified as payment system requiring approval / authorisation by the RBI.
- The most common example of a closed system PPI is a brand-specific gift card. Such cards, physical or otherwise, can be used only at specific locations, and cannot be used to transfer funds from one account to another.
Semi-closed System PPIs
- These PPIs are issued by banks (approved by RBI) and non-banks (authorized by RBI) for purchase of goods and services, including financial services, remittance facilities, etc., at a group of clearly identified merchant locations / 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, irrespective of whether they are issued by banks or non-banks.
- E-wallets like Oxigen and Mobikwik examples of semi-closed PPIs. These are not restricted to a single entity.
- Instead, these can be used for purchase of any kind of goods and services from a merchant, as well as to transfer money to someone.
Open System PPIs
- These PPIs are issued only by banks (approved by RBI) and are used at any merchant for purchase of goods and services, including financial services, remittance facilities, etc.
- Cash withdrawals at ATMs / Points of Sale (PoS) terminals / Business Correspondents (BCs) are also allowed through such PPIs.
- A travel card is a type of open system PPI. It can be used for all types of spending and for cash withdrawal from ATMs.