Prepaid Payment Instrument

What are Prepaid Payment Instruments?

Prepaid Payment Instruments, commonly known as PPIs, are electronic payment methods that allow users to store money in advance for seamless transactions. These versatile digital wallets or accounts, available as physical cards, virtual wallets, or mobile apps, are issued by authorized entities like banks and payment system operators.

Prepaid instruments offer numerous advantages, including convenience, security, and flexibility. With funds preloaded into the account, users can make online and offline purchases, pay bills, transfer funds, and more, without relying on immediate bank transfers or carrying cash.

However, it’s important to note that regulations and features of PPIs may vary across jurisdictions, as they are subject to local financial and regulatory frameworks. Stay informed about the specific requirements and offerings in your country or region.

Prepaid Payment Instruments Examples

Smart cards, online wallets, stripe cards, paper coupons, and online accounts are a few examples of prepaid payment methods. Access to the pre-paid funds is the key objective of these products. As a result, it is possible to make purchases without physically transferring money or a credit card.

Prepaid Payment Instruments in India

Paytm, Phonepe, and GPay (semi-closed system PPIs), gift cards, Amazon vouchers (closed system PPIs), and debit or credit cards (instances of PPI in banking) are some examples of PPIs.

RBI Prepaid Payment Instruments 

Prepaid Payment Instruments (PPIs), as defined by the RBI in accordance with the Payment and Settlement Act, 2005, are payment instruments that permit the purchase of goods and services, including the transfer of funds, financial services, and remittances, against the value stored within or on the instrument.

The value that has been recorded in the instrument corresponds to the value that has already been acquired by the holder or the instrument using any method, including cash, debit from a bank account, credit card, or even additional PPIs. PPIs can mimic a variety of objects, including mobile wallets, smart cards, magnetic chips, and payment wallets. A PPI is any device that gives users access to prepaid funds.

By February 28, 2019, PPI issuers have to have finished the KYC procedure in accordance with instructions from the RBI. The banking authority ordered PPIs or mobile wallets to collect all the data needed to comply with the know-your-customer (KYC) rules by the end of February in October 2017.

What are the types of Prepaid Payment Instruments?

PPIs might be in the form of payment wallets, smart cards, coupons, magnetic chips, and more. The Reserve Bank of India (RBI) has divided prepaid payment instruments into three classes under the previous Master Direction on Issuance and Operation of Prepaid Payment Instruments of 2017. 

Closed system PPIs

Such PPIs do not allow withdrawals of cash. These PPIs assist in making it easier to only buy products and services from that company.

Additionally, these instruments cannot be used for settlement or payments for services provided by third parties.

Such instruments are not considered to be payment systems, hence the Reserve Bank of India (RBI) is not required to approve or authorise their issue or use.

Semi-closed system PPIs

You cannot withdraw cash using these payment instruments, regardless of whether they were issued by banks or non-bank organisations.

For instance, the central bank and non-bank financial institutions have allowed PPIs including HDFC Bank’s PayZapp and State Bank of India’s YONO. For the purchase of goods and services, including financial services, payments, money transfers, and remittance facilities, PPIs like Paytm and GPay are permitted by the RBI.

As long as the merchant has a special agreement with the issuer to accept the PPIs as payment methods, they can often be used there.

Open system PPIs

Debit and credit cards are the PPIs that are most often used. These PPIs allow for cash withdrawals.

However, exercise caution when making a cash withdrawal from a credit card since you will be assessed a high interest rate from the day of the transaction.

These PPIs from the banks, which have been authorised by the central bank, can be used at any retailer to buy goods and services, including financial services, remittance services, etc.

Through these PPIs, cash withdrawals from ATMs, point of sale terminals, and business correspondents are authorised.

Who Can Issue PPIs?

The following criteria must be satisfied by non-banking organisations, such as businesses, in order for them to be qualified to issue PPIs: – 

  • The business must be set up in India. – The company’s minimum paid-up capital must be greater than Rs 5 crore. – A minimum net worth of Rs 1 crore is required at all times.
  • Any financial institution that satisfies the eligibility requirements stipulated by the RBI is permitted to issue PPIs. But only banks with the RBI’s approval may introduce mobile-based PPIs when it comes to offering mobile banking transactions.
  • Only in a closed or semi-closed system are non-banking financial institutions and other enterprises allowed to issue PPIs. This includes PPIs that run on mobile devices. To issue PPIs, non-banking businesses just need to keep an escrow account with any licenced commercial banks in the nation.

Types of Semi-Closed PPIs

Three different varieties of semi-closed PPIs exist. Only a specific amount of money may be placed onto a PPI, depending on the kind. These are what they are:

1. PPI with the bare minimum of details: In this kind of PPI, the PPI holder’s fundamental information is only obtained. The PPI issuer, for example, has not gotten any additional information about the holder, such as an address, a pan number, an aadhaar number, or information about their bank accounts, etc. The most money that can be added to the PPI in this situation is up to Rs 10,000.

2. Adding Balance from Bank Account: The maximum amount of money that may be loaded onto the PPI is Rs 10,000 in the event that the PPI can only be loaded via the bank account and not through any other means, such as cash etc.

3. Full KYC PPI: The maximum amount of money that may be placed onto the instrument increases to Rs 1 lakh when the full KYC of the PPI holder has been obtained and registered by the PPI issuer.

FAQs on Prepaid Payment Instruments

Q: What types of PPIs are available?


PPIs may be distributed as cards, wallets, or any other device that allows access to the PPI and usage of the monies it contains. Paper vouchers cannot be used to redeem PPIs.

Q: What is the maximum number of times a customer can maintain a PPI (with a cash loading facility)?


The maximum retention period for a modest PPI (with cash-loading capacity) is 24 months. For credit to be allowed, the PPI must be converted into a full-KYC PPI during the next 24 months; The 24-month term starts the same day the PPI is extended. The PPI holder, however, is allowed to spend the remaining balance.

Q: How can PPIs be loaded?


Prepaid Payment Instruments can be loaded/reloaded with credit (not allowed for one type of Small Instrument), transferred funds to a bank account, withdraw credits into a wallet from credit and debit cards (as allowed from time to time), and other payment instruments issued by companies authorised in India and only in Indian Rupees (INR).

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