Mapping the interoperability of prepaid payment instruments in the Indian context

To date, prepaid payment instruments (PPIs) are well entrenched in the country’s payments landscape. Individuals and businesses use these instruments on a daily basis in the form of mobile wallets or prepaid cards to facilitate simplified payments. Essentially, users pay their desired value for PUPs using credit cards, debit cards, cash, or other PUPs. This value is stored in these instruments and can be used instantly and easily across multiple platforms.

As the use of PPI gains traction, this article covers important updates regarding the interoperability of these ubiquitous payment instruments. However, before discussing the interoperability of these instruments, let’s first look at the different types of PUPs.

According to the updated main instructions on prepaid payment instruments (MD-PPI) published on November 12, 2021, there are 3 types of PPI:

1. PPI in a closed system:

These IPPs are issued by an entity to facilitate the purchase of goods and services from that entity only and do not allow for cash withdrawal. Users may not use these instruments for payment or settlement of third-party services. The issuance or operation of such instruments is not classified as a payment system requiring the approval or authorization of the RBI and is therefore not regulated or supervised by the RBI.

2. Small PUPs (PUPs with minimal details)

These are issued by banks and non-banks after obtaining minimum details, necessarily including an OTP-verified mobile phone number and self-declaration of name and identity/unique identification number any “mandatory document” or OVD or any other document with any name listed for that purpose in the PPI holder’s Master Direction on KYC. These can only be used for the purchase of goods and services and do not allow the transfer of funds or the withdrawal of cash. Small PPIs can be used in a clearly identified group of merchants or institutions that have a specific contract with the issuer (or contract through a payment aggregator/payment gateway) to accept PPIs as payment instruments.

3. Full KYC PPIs

These PPIs are issued by banks and non-banks after completing the PPI holder’s KYC, along with a Video Customer Identification Process (V-CIP), and can be used to open full KYC PPIs. as well as converting small PPIs into full KYC PPIs. Full KYC PPIs cannot hold an amount greater than IRN 2,00,000 with fund transfer limits set at INR 2,00,000 for pre-registered recipients and INR 10,000 for others. In addition, users can also transfer funds from these PUPs to other PUPs, debit cards and credit cards in accordance with the aforementioned limits.

Apart from this, there are 2 specific categories of PUPs including:

· PPI gifts – Non-reloadable, maximum value should not exceed INR 10,000, withdrawal or transfer of funds is not permitted for these instruments.

· PPI for Mass Transit Systems (MTS) – Rechargeable, the maximum value should not exceed INR 3000, withdrawal or transfer of funds is not allowed for these instruments. Outside of MTS, these PPIs should only be used at merchant outlets whose business is allied/related to or conducted on MTS premises.

We now come to the interoperability mandates on these instruments:

Interoperability is the technical compatibility that allows a payment system to be used in conjunction with other payment systems. In accordance with the main instructions on prepaid payment instruments, interoperability has been made mandatory on all complete KYC wallets/cards, and interoperability is also mandatory on the acceptance side. Thus, the QR codes of all modes will be interoperable by March 31, 2022.

This is because the money loaded on a PPI can now be used on the card and UPI acceptance network in India. While full KYC PUPs issued as wallets will provide interoperability between PUPs via UPI, full KYC PUPs issued as cards, physical or virtual, will be affiliated with authorized card networks. Finally, the PPI-MTS will be exempt from interoperability, while Gift PPI issuers will have the ability to offer interoperability. This is a beneficial step for financial inclusion and reducing the use of cash in the country.

Requirement to achieve interoperability via UPI:

In conclusion, by March 31, 2022, all Full KYC PPI Issuers and UPI QR Acquirers will be required to ensure that all Full KYC PPI Issuers and Acquirers are compliant with the RBI Circular on PPI Interoperability. PPI interoperability will enable new era FinTechs and bank-led PPIs to co-create innovative new products across the PPI, UPI and Cards payment rails.



The opinions expressed above are those of the author.


About Matthew R. Dailey

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