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How to implement the best Prepaid Payment Instrument (PPI) for your business?

Jun 18, 2021

Looking to simplify and accelerate domestic and cross-border payments, remittances, and fund transfers?

Then you need to augment your payments ecosystem with Prepaid Payment Instruments (PPIs).

Why should you join the PPI bandwagon?

PPIs are more than just payment instruments. They are disruptive business enablers with immense potential to drive sales, customer experience, and revenue.

Right from its launch in 2002, the PPI market grew rapidly in India. The digital India strategy and the subsequent demonetization contributed greater impetus to PPIs by accelerating digital payments, mobile wallet usage, and Unified Payments Interface (UPI) transactions. Further, the pandemic gave PPIs a dramatic push forward when consumers prioritized safe, cashless, and touchless payments over physical modes.

Without carrying a single penny or keying in PINs, or signing receipts at the Point of Sale (POS), consumers conveniently purchased products and services using PPIs as a viable alternative to cash. The payments landscape was incredibly frictionless, quick, and convenient, with excellent fraud monitoring and zero liability features. In fact, the PPI service providers even reimbursed users when they suffered losses due to fraud or unauthorized transactions.

As the payment process was super fast, smooth, and safe, the adoption of PPI transactions in India hit the roof. Research firm Statista confirms that 2020 alone accounted for nearly 5.5 billion PPI payments in India. Today PPIs are emerging as one of the most preferred payment instruments in the country. So, it’s high time you join the PPI bandwagon.

How can your business benefit from PPIs?

Prepaid payment instruments in the form of mobile wallets, multipurpose, multicurrency, prepaid cards can accelerate sales, customer loyalty, and profitability. You can earn significant revenue for every transaction made through mobile wallet-enabled prepaid cards you issue.

Businesses must leverage PPIs to tap into the gigantic 760 million smartphone user base in India, who will most likely shop online and pay using mobile apps and wallets.

Using prepaid instruments, you can enable bank-like domestic and cross-border payments, but with greater efficiency, flexibility and security. Armed with the ground-breaking PPI reforms announced by the Reserve Bank of India (RBI), every business in India must ride the PPI wave to reap the utmost benefits.

The following are significant measures announced in the 2021 RBI monetary policy review, applicable from March 31, 2022.

  1. PPIs can offer Real-Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) facilities to their users
  2. Interoperability of full KYC PPIs are mandatory
  3. Maximum balance of mobile wallets doubled to INR 2 lakh from INR 1 lakh
  4. Cash withdrawals enabled for full-KYC PPIs of non-bank PPI issuers (in addition to bank issuers)

These reforms have the potential to level the playing field between banks and non-banks, incentivize full KYC PPIs, and drive greater financial inclusion. Businesses that accept payments and remittances through prepaid payment instruments will experience higher customer acquisition, retention, and loyalty, increased customer lifetime value, and long-term profitability.

Which PPI is best for your business?

Before we delve deeper into deciding the best payment instrument for your business, let’s understand the fundamentals of PPI.

Are you someone who finds financial concepts challenging to decode?

Don’t worry. We’ll simplify them for you.

Prepaid Payments Instruments (PPI)

PPIs comprise ewallets and virtual cards that enable consumers to purchase products and services, remit money, and transfer funds electronically using an underlying prepaid account. Customers can load/reload Indian Rupees (INR) to the prepaid account from bank accounts, credit/debit cards, or other payment instruments. The loading limit is limited to INR 50,000 per month, subject to the overall limit of the PPI (not permitted in PPIs with loading only from bank account). The 2021 RBI monetary policy doubled the outstanding balance limit of full-KYC PPIs from INR 1 lakh to INR 2 lakhs.

Types of Prepaid Payment Instruments (PPIs)

Prepaid Payment Instruments can be broadly classified into three major categories listed below.

  1. Closed System PPIs
  2. Semi-closed System PPIs
  3. Open System PPIs

Closed System PPIs

Gift vouchers, gift cards, loyalty program cards, and smart cards fall under the closed system PPI category. These payment instruments can be used only within the business that issued the card. Customers cannot withdraw cash or purchase products or services from external companies or third parties. You do not need RBI approval or authorization to issue and operate closed system payment instruments.

Semi-closed System PPIs

Paytm, Phone Pe, Mobikwik, Gpay, YONO (SBI bank PPI), and PayZapp (HDFC bank PPI) are a few among several brands that fall under the semi-closed system PPI category. These semi-closed prepaid payment instruments can be issued by banks and Non-banking Financial Institutions (NBFCs) upon the approval and authorization of the Reserve Bank of India. Gift PPIs, PPIs for Mass Transit Systems (PPI-MTS), and prepaid meal instruments are also semi-closed PPIs but without cash withdrawal or funds transfer facilities. But RBI has given Gift PPIs the option for interoperability, unlike its counterparts.

Based on Know Your Customer (KYC) norms and loading source, the semi-closed system PPIs can be classified into three categories.

  1. Minimum detail PPI
  2. Loading only from bank PPI
  3. Full KYC PPI

Minimum detail PPI:

Only the bare minimum details (name and phone number) of the PPI holder are captured by the issuer in minimum detail PPIs. Details such as an address, PAN number, Aadhar number, or bank account details are not asked for by the PPI issuer. For minimum detail PPIs, the maximum amount of money that may be loaded on the PPI is up to INR 10,000 per month.

Loading only from bank PPI:

In this category, the PPI can be loaded only via the bank account and not through any other means. The maximum limit that can be loaded onto the load only from bank PPI is INR 10,000 per month.

Full KYC PPI

In the full KYC compliant PPI, all relevant details of the PPI holder are captured and registered by the PPI issuer. Full KYC includes capturing the name, phone number, address, PAN details, Aadhar details, bank account information, photograph, and other ancillary details of the customer. The maximum limit of money that can be loaded onto these PPIs is INR 1 lakh. According to the recent Reserve Bank of India (RBI) directive, full KYC PPIs have to mandatorily offer their customers interoperability through card networks and UPI (Unified Payments Interface) by March 31, 2022. And their outstanding balance has been doubled to INR 2 lakhs from INR 1 lakh.

These full KYC payment instruments allow customers to remit money and purchase products and services from merchants or businesses with contractual tie-ups with the PPI issuers. Semi-closed PPIs do not permit cash withdrawals in general, but they allow cash withdrawals and fund transfers only for full KYC customers. Users can load/reload PPIs from INR 10,000 (Load only from bank/ minimum detail PPI) to INR 2 lakhs (Full KYC). After 24 months, the minimum detail user should progress to the Full KYC category, failing which his PPI account will be closed.

Open System PPIs

Cards issued by banks (approved by the RBI) fall under the Open System PPI category. These payment instruments allow the purchase of products and services, remittances, and fund transfers in addition to cash withdrawals at ATMs / Point of Sale (PoS) / Business Correspondents (BCs). Customers can maintain a balance of up to INR 1 lakh after completing the full KYC.

Who can issue PPIs?

The following entities can issue PPIs post authorization/approval of RBI.

Non- banking entities

  • They must be incorporated in India
  • Minimum paid-up capital — more than INR 5 crores
  • Minimum positive net worth — INR 1 crore at all times

NBFCs

  • Maintain escrow account with any scheduled commercial bank in India

Banks

  • Compliant with PPI eligibility criteria established by the RBI

Difference between Prepaid Payment Instruments(PPI) and Payments bank?

Before plunging into the difference between PPIs and Payment Banks (PBs), let us understand what Payment Banks are.

Payments Bank

Aimed at fostering financial inclusion, RBI conceptualized Payments Banks in 2013. Payment Banks are regular banks operating on a restricted scale without credit risk. They provide small savings accounts, current accounts, demand deposits, payments, and remittance services to migrant labor workforce, low-income households, small businesses, and other unorganized sectors. The account holder can deposit or withdraw money via any ATM or service provider.

Payments banks can issue ATM/debit cards but not credit cards and loans. To boost the payment banks sector, RBI doubled the end-of-the-day maximum balance limit from INR 1 lakh to INR 2 lakhs per customer (applicable from March 2022) in its latest directive.

Non-financial businesses, government departments, NBFCs, and Prepaid Payment Instrument (PPI) issuers can operate payment banks in India. Listed below are few payments banks in India.

  • Airtel Payments Bank
  • India Post Payments Bank
  • Fino Payments Bank
  • Jio Payments Bank
  • Paytm Payments Bank
  • NSDL Payments Bank

Prepaid Payment Instruments vs Payments Bank

In a way, PBs and PPIs operate on similar business models. Both accept deposits (PPIs via wallets) and enable payments. But here are three key differences between a PPI and PB.

1) Payments banks pay interest to customers for their deposits. But PPIs do not pay interest for the customer money deposited in their digital wallets. Now there are two substantial reasons for this inability. Firstly, PPIs are not authorized to pay interest by regulatory authorities. Secondly, PPIs do not earn interest on their escrow balances from the sponsor bank. Therefore their ability to pay interest to their wallet customers is hampered.

2) Another key difference is the deposit protection that payment banks offer over prepaid payment instruments.

3) The third difference is that PPIs bear the risk of succumbing to financial crimes such as money laundering and terrorist financing due to inadequate KYC in some instruments. But PBs have stringent KYC norms that involve third-party authentication.

Hence most of the PPI players have transferred their PPI licenses to PB licenses. Now that RBI has proposed measures to incentivize full KYC PPIs with NEFT, RTGS, interoperability, and an INR 2 lakh mobile wallet balance, leveraging the synergy between PBs and PPIs will benefit the customer as well as the payment ecosystem as a whole.

Do PPIs support cash withdrawals?

Yes, the latest RBI mandate establishes that cash withdrawals will be permitted for Full-KYC PPIs of Non-Bank PPI Issuers, open system prepaid cards issued by banks in India, and Points of Sale (PoS) terminals using debit cards. The withdrawals will have a maximum limit of INR 2,000 per transaction with an overall limit of INR 10,000 per month per PPI.

These cash withdrawals via card or wallet must be authenticated by an Additional Factor of Authentication (AFA) or a Personal Identification Number (PIN) with proper customer redressal mechanisms and a cooling period to mitigate fraudulent transactions.

Who regulates the PPIs?

Prepaid payment instruments are licensed and regulated by the Reserve Bank of India (RBI).

How to implement the best PPI for your business?

Partnering with a Fintech service provider like M2P is the best way to implement the best PPI for your business.

We empower you to go to market immediately with your own prepaid card and mobile wallet. You need not wait for months to go live with your product.

Leveraging our trusted partnerships with banks and PPI license holders, we enable businesses of every size and scale to issue customized PPIs of their choice. We facilitate highly secure transactions and easy load/reload options via National Electronic Funds Transfer (NEFT), Real-time Gross Settlement (RTGS), Immediate Payment Service (IMPS), and Unified Payments Interface (UPI) options.

Our cutting-edge Application Programming Interfaces (APIs) have enabled several businesses like Ola and Muthoot Finance to issue multipurpose, multicurrency, physical, or virtual wallet-enabled prepaid cards for their employees and customers. Businesses can leverage our Payment Card Industry Data Security Standard (PCI-DSS) compliant stacks and Software Development Kits (SDKs) to alleviate customer data theft and card frauds.

Using your own branding style guides, we deliver user-friendly mobile apps and wallets with excellent reward programs, spend control, security, and fraud detection features. Our real-time reconciliation of card transactions, data-rich dashboards, and accounting process simplifies program management and spend monitoring for businesses. In addition to issuing new cards, we also deactivate redundant cards and block cards in case of thefts or misplacements.

Our customized PPI solutions help enhance and expedite the following platforms.

Can’t wait to get your own mobile wallet and prepaid card?

Get in touch with us at business@m2pfintech.com.

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