Under the Master Directions for PPIs (MD-PPI), three types of PPIs are recognized namely
a) Closed System PPIs
b) Semi-Closed System PPIs
c) Open System PPIs
Closed System PPIs are those PPIs which are issued by an entity for facilitating the purchase of goods and services from that entity only and do not permit cash withdrawal. As these instruments cannot be used for payments or settlement for third party services, the issuance and operation of such instruments is not classified as payment systems requiring approval / authorisation by the RBI.
Semi-closed System PPIs are those PPIs which are used for purchase of goods and services, including financial services, remittance facilities, etc., at a group of clearly identified merchant locations / establishments which have a specific contract with the issuer (or contract through a payment aggregator / payment gateway) to accept the PPIs as payment instruments. These instruments do not permit cash withdrawal, irrespective of whether they are issued by banks or non-banks,
Open System PPIs are those PPIs which are issued only by banks and are used at any merchant for purchase of goods and services, including financial services, remittance facilities, etc. Banks issuing such PPIs shall also facilitate cash withdrawal at ATMs / Point of Sale (PoS) / Business Correspondents (BCs).
PPIs may be “Reloadable” or “Non Reloadable”. Some PPIs may permit “Cross Border outward Transactions” and some may not. PPIs may also be issued against inward remittance to the beneficiaries under Money Transfer Service Scheme of RBI. Some PPIs may be denominated in Foreign Exchange also.
PPIs may be issued as cards, wallets, and any such form / instrument which can be used to access the PPI and to use the amount therein.
PPIs may be issued under Co-Branding arrangements. If one of the Co Branding partners is a Bank and the other is a Non Bank, the Bank will be the PPI Issuer. If both are non Bank institutions, or both are Banks, then one of them shall be designated as the PPI issuer.
Paper based prepaid meal instruments shall be discontinued from December 31, 2017 and semi closed PPIs shall be issued for such purpose.
The Regulations
Most of the regulations in the Master Directions relate to Semi Closed PPIs.
According to the guidelines, PPIs upto a monthly usage limit of Rs 10000/- can be issued on the basis of self declaration of name and an ID along with OTP on a mobile. Essentially these are non_KYC compliant instruments.
Funds in these non KYC PPIs can be used only for purchase of goods and services and money cannot be transferred back either to Bank accounts or to other PPIs.
These PPIs need to be compulsorily converted into KYC type within 1 year. If KYC is not provided, no further credit would be allowed but the balance can be used.
If the PPI is closed at the request of the user, money can be transferred back to the own bank account of the PPI holder for which KYC would be required or “Back to Source”. (P.S: Not clear if KYC is not required for Back to Source transfer on closure).
The PPI issuers need to ensure that same category PPI is not issued against the same mobile number. (P.S: There is an ambiguity whether a second non KYC PPI can be issued against the same mobile number if the name and ID is different. Ideally this should not be allowed).
PPIs for transaction upto Rs 1 lakh are KYC compliant PPIs. Money can be transferred to own bank account or Back to source.
“Pre registered beneficiaries” can be allowed for these KYC PPIs and money can be transferred to them upto the limit of Rs 1 lakh per month.
Fund transfer limits in the case of non pre-registered beneficiaries is limited to Rs 10,000/- per month.
Open Systems
The “Open” systems are permitted only to be issued by Banks and with KYC. Here also there can be pre-registered beneficiaries and others and transfer to others is restricted to Rs 10000/- per month.
The only difference between the Pre-closed and open systems is that Funds transfer for Open PPIs shall also be permitted to other open system PPIs, debit cards and credit cards as per the limits such as Rs 10,000/- except to pre-registered beneficiaries.
Gift and MTS PPIs
Other than the above three main categories of PPIs, specific PPIs such as Gift Instruments (Maximum value Rs 10,000/- without cash-out or refund or reloading).
But KYC would be required on a risk based approach if multiple Gift cards are required to be issued to one person. (P.S: This is tricky and needs some policy guidelines to be formulated by the PPI issuer)
PPIs can also be issued for Mass Transit Systems which may be Semi Closed PPIs usable only for the transit systems and allied merchants. They are re loadable with a maximum outstanding or Rs 3000/- at any point of time.
Conversion of Existing PPIs
According to the directions, PPI issuers shall give an option to all PPI holders to convert the existing semi-closed and open system PPIs issued to them into any type of the PPIs as indicated in the directions.
After carrying out the applicable due diligence for that type of PPI, this conversion shall be completed on or before December 31, 2017 . Where PPI holders have not exercised the option the PPIs issued to them shall mandatorily be converted into minimum detail PPIs on January 01, 2018 with all the applicable features.
Looking at the regulations above, except for mandatory KYC after 1 year for all Semi Closed PPIs there is no major change from the current system.
Fraud control is through limiting of the fund transfer limit to the non pre-registered beneficiaries to Rs 10,000/-. Restriction of transfer and withdrawal by cash is essential for controlling the Black Money and hence, there should be nothing much for the PCI to object on the KYC aspect.
The argument that frauds happen at the loading time at the Card end and not at the Wallet/PPI end is not tenable since both need to share the responsibility and liability since fraud is facilitated because the Wallets/PPIs have no KYC and it escapes detection of the end user of fraudulent transfer from a Card. We need to take all steps to prevent frauds and losses and it is unfair that all the liabilities are to be boarne only by the Card issuers.
In view of the “Zero Liability” aspect, Banks need to bear the cost of frauds and there is a need for the PPI issuers in the private sector to also take precautions by proper KYC so that the losses can be recovered and possibilities of fraudsters repeating their fraud with different PPI issuers and multiple non KYC PPIs is prevented.
It is necessary for RBI to insist that both the Banks and the PPI issuers obtain necessary Fraud insurance so that their risks are covered and customers are not put into difficulty.
(To Be continued)
Naavi
