Prepaid payment instruments (PPIs) are a popular method of making payments in India. They are widely used by individuals who do not have access to credit or debit cards or do not want to use traditional banking channels. The PPIs allow users to make digital transactions without the need for a bank account.
Types of PPIs
PPIs can be in the form of smart cards, magnetic stripe cards, internet wallets, mobile accounts, etc. These payment instruments are issued by banks and non-bank entities that are authorised by the Reserve Bank of India (RBI). The PPIs can be of two types – open-loop and closed-loop. Open-loop PPIs can be used for transactions at all merchants that accept them. They are similar to debit or credit cards and allow users to withdraw cash from ATMs. Closed-loop PPIs, on the other hand, can be used only at a specific merchant or group of merchants.
Recent Developments
The RBI recently authorised banks and non-banks to issue rupee-dominated full-KYC PPIs to visiting NRIs and foreign nationals. These payment instruments can also be issued in a co-branding arrangement with entities that are permitted to deal with foreign exchange under the Foreign Exchange Management Act (FEMA).
The full-KYC (Know Your Customer) PPIs require customers to complete the KYC process, which includes providing their identity and address proof. The PPI issuers are required to adhere to the RBI’s guidelines and regulations related to customer due diligence and anti-money laundering.
Benefits of PPIs
PPIs have several benefits over traditional banking channels. They allow users to make digital transactions without the need for a bank account. This is especially useful for those who do not have access to banking services. PPIs are also more secure than cash transactions as they can be tracked and traced in case of any fraudulent activities.
PPIs are also more convenient as they allow users to make transactions from their mobile phones or other digital devices. They can be recharged easily using cash, debit cards, or credit cards. The PPIs also offer cashback rewards and discounts on transactions, making them more attractive to users.
Challenges
The widespread use of PPIs in India has also led to some challenges. The lack of proper regulations has led to several cases of fraud and cybercrime. The RBI has issued guidelines for PPI issuers to ensure the security of these payment instruments. Another challenge is the limited acceptance of PPIs at merchants. While the use of PPIs has been growing, many merchants still do not accept them as a payment method. This limits the usefulness of PPIs for users who want to use them for daily transactions.
