Prepaid Payment Instruments A Discussion on Draft Guidelines by RBI

1. Prepaid Payment Instruments A Discussion onDraft Guidelines by RBI

2. Salient features • Eligibility • Banking & non-banking entities, current or planned are covered • Only banks, which have Mobile Banking approval are permitted to launch mobile based prepaid instruments • Non Banks would be permitted to issue only closed system prepaid payment instruments & semi-closed system prepaid payment instruments • Closed Instruments out of purview of guidelines • Safeguards against money laundering – KYC/AML/CFT provisions • Uses of prepaid instruments for cross border transactions are not permitted. • The maximum value of any prepaid payment instrument shall not exceed Rs 50,000/-. • Semi-Closed System Payment Instruments up to Rs 1000/- may be issued without any KYC subject to reporting Issuer to ensure that, more than one card is issued to the same person. • Semi-closed Prepaid payment instruments which permit only payment of utility bills/ essential services up to a limit of Rs 10,000/- can be issued without any KYC being undertaken by the issuer.

3. Salient features • Escrow for Non Banks with a scheduled bank • Qtly certificate from the auditors shall be submitted certifying the same • Annual certificate, as above, coinciding with the accounting year of the entity to the RBI. • Records regarding daily position of the value of instruments outstanding vis-à-vis balances maintained in the escrow made available for the scrutiny to the RBI or the bank with the Escrow account on demand • Issuance & reloading : • All entities issuing prepaid instruments are allowed to issue reloadable & non- reloadable instruments. • Reloading of closed system payment instruments would be permitted at the retail agents & issuers outlets against cash/ debit cards/ credit card. • Banks & NBFCs can issue & reload at branches against payment by cash/ debit to bank account or credit card.  • Banks are permitted to issue & reload through BCs • Validity • Minimum 6 months validity from date of issue. • Transferring outstanding balances to a new instrument depends on Issuer • The outstanding balances not to be terminated immediately at expiration • The value may be depleted at the rate of 10 percent of the outstanding value per month. • Holders should be adequately cautioned in advance regarding the expiry date

4. Definitions • Redemption • Redemption up to full outstanding value at any participating merchant up to expiry date • Redemption in cash only for open system instruments • Anyone can redeem the outstanding balance in cash within the expiry date, if the scheme (issuer) is being wound-up or directed by the Reserve Bank to be discontinued. • Where redemption is provided, the redemption value shall not be in excess of the amount outstanding or the face value (loading limit) for the instrument, whichever is lower. • Fraud Prevention, Security Standards & Customer Protection • Issuers shall put in place adequate information & data security infrastructure, & systems for prevention & detection of frauds • Disclosure of important information to the customer preferably in local language including: • Customer service telephone number & website URL. • Expiry period & all other terms & conditions • Customer service telephone number & website URL.

5. Definitions • Closed System Payment Instruments: • Shoppers Stop Gift Vouchers • Exempt from the purview of draft guidelines • Semi-Closed System Payment Instruments: • Redeemable at a group of clearly identified merchants/ establishments • Specific contract with the issuer to accept the payment instrument • No limit on the number of such merchants • No cash withdrawal or redemption in cash allowed • Semi-openSystem Payment Instruments: • Can be used for purchase of goods & services at any card accepting merchant locations (Point of sale terminals) • No additional specific contract required between issuer & merchant • No cash withdrawal or redemption in cash allowed • Mobile Prepaid Instruments: • Prepaid talk time issued by mobile service providers • Can also be used for purchase of 'value added services‘ • Cannot be used to pruchase goods or pay for other non VAS services

6. At a Glance

7. Discussion Points • If Bank & non-Bank service provider wish to work together, then the suggested process is • Bank takes a Board approval • Confirms that the entity has fulfilled all requirements • Writes to DPSS for a case by case approval • NOF waived where stipulated ESCROW is maintained • Software & intangible assets (such as IPR, Brand value etc.) are a major part of the Net Worth of the Service providers in this field & deduction of the same while calculating NOF , will means a reduced NOF & maybe –ve in some cases • Right over Escrow Account balance • Acquirer will have first right • Holder will have next right • Issuer will have last right

8. Discussion Points • Instruments issued without any KYC • Currently permit only payment of utility bills & essential services • Need to be more broad based including merchants from organised sectors like Movie halls / Hospitals / Hotel chains / Retail chains • Similar merchants to be included in Semi Closed • Increase in limits for cases wherein Card is issued with limited KYC – Current limits are Rs. 5,000 • Confirmation on Limits • We assume they are on a per Card per day basis • If not, we need clarity on what the basis is • E.g. Semi-closed for utility payments is limited to Rs. 10,000 • Expiry • Should be terminated immediately after expiry date • Refund/ transfer to new instrument depends on Issuer • Market forces will not allow unequal competition

9. Discussion Points • KYC Requirements • Semi Closed system up to Rs. 1,000 issued without KYC • customer may take multiple such Cards & mis-use the system • Views on how this can be controlled in a fool proof manner • Where KYC is to be collected, what is the expected process to collect & maintain the same • KYC for Non cash Reload • Reload at an ATM • Reload on internet/ mobile banking • Relaod at branch • For cases wherein Cards can be issued by accepting any Government issued Identity Card as ID proof, if the purchase / recharge is happening only through any option mentioned above the same card should to be acceptable ID proof

10. Discussion Points • Which NBFCs that can issue such instruments • Any NBFC accepting deposits • Any NBFC not accepting deposits • RNBC with Escrow and the necessary NOF ? • DSAs to be used by banks for sourcing applications for prepaid instruments similar to credit cards

11. Thank You