RBI revises classifications of PPIs


    The Reserve Bank of India (RBI) on 27 August issued master directions on prepaid payment instruments (PPIs) with new classifications and to provide a framework for their authorisation, regulation and supervision.

    New companies setting up and operating payment systems for PPIs will require prior RBI approval or authorisation.

    The master directions have replaced the earlier classification of closed system, semi-closed system and open system PPIs, with two new categories:

    (1) Small PPIs. These are PPIs issued by banks and non-banks after obtaining minimum details of the PPI holder. These are to be used only for the purchase of goods and services. Fund transfers or cash withdrawals from such PPIs shall not be permitted. The PPIs can have cash up to INR10,000 loaded per month and up to a maximum of INR120,000 in a year; and

    (2) Full-KYC PPIs. Banks and non-banks issue these after completing know-your-customer (KYC) checks of the PPI holder. It can be used for the purchase of goods and services, fund transfers or cash withdrawals. The PPIs can have up to INR200,000 at any point of time. The use of INR-denominated PPIs for cross-border transactions shall not be permitted except for some exemption stated in the direction.

    PPI issuers have to formulate a board-approved policy for PPI interoperability. For PPIs in the form of digital wallets, interoperability will be enabled through a Unified Payments Interface, a real-time payment system developed by the National Payments Corporation of India, a specialised division of the RBI. PPIs issued in the form of cards (physical or virtual) shall be affiliated with authorised card networks. Interoperability shall be mandatory on the acceptance side as well.

    The RBI has exempted PPIs for mass transit systems from interoperability, while gift PPI issuers (both banks and non-banks) have the option to offer interoperability and QR codes in all modes, which shall be active from 31 March 2022.

    PPI issuers will have to implement a formal, publicly disclosed customer grievance redressal framework, including designating a nodal officer to handle customer complaints or grievances, the escalation matrix and turnaround times for complaint resolution. In the case of PPIs issued by banks and non-banks, customers can resort to the Banking Ombudsman Scheme and Ombudsman Scheme for digital transactions for a redressal of grievances.

    The Business Law Digest is researched and written by Mithun Varkey.