Authors: Ashish Punjabi and Sadanand Ojha
A year ago, the Reserve Bank of India (RBI) issued its revised Master Directions on Issuance and Operation of Prepaid Payment Instruments (PPIs). The directions included significant changes to Know Your Customer (KYC) requirements for existing and new PPIs issued to customers. Over the course of one year, the PPI industry has made several changes to its business models to comply with the regulatory requirements.
With a vision to enable PPIs to become an integral part of the larger financial services ecosystem, on 16 October 2018, the RBI issued its much-anticipated directions on interoperability for PPIs. Under this new regime of interoperable prepaid instruments, the RBI has enabled wallet users to seamlessly transfer funds from one wallet to another (of another issuer) and from their wallets to bank accounts through the Unified Payments Interface (UPI) platform. The RBI has also provided a thrust to non-bank PPI issuers by enabling them to participate directly as a member/associate member of card network associations for issuance and operation of cards. This move is expected to increase the overall acceptance of non-bank PPI player
As the regulation is not mandatory, interoperability adoption will be considered by players after taking into account the impact on their business model.
Will get Bank Identification Number (BIN) by network for issuance and operation of cards and participate in settlement directly or through a sponsor bank arrangement.
Interoperable cards will be EMV chip and PIN compliant except for gift and MTS cards which can be issued as magstripe cards with a loading value of 10,000 INR and 3,000 INR (reloadable) respectively.
Min-KYC customers will not be able to take benefit of interoperability as the risk for such category of customer is high.
Non-bank PPI issuers will be issued a UPI handle by NPCI and will be allowed to on-board their wallet customers only. Nonbank players cannot provide UPI handles to other partners.
PPI interoperability was a much-awaited step. It is likely to be a game changer for the payments industry, in addition to making the overall PPI ecosystem much more robust. The move is going to impact almost all the stakeholders of the payments ecosystem and will likely make the business environment more competitive and innovative, thus benefiting the end customer. Interoperability is also likely to reduce complexities for most of the stakeholders in terms of PPI deployment and usage. The key impact on different stakeholders is summarised below:
Post demonetisation, the PPI industry has seen tremendous growth as customers started adopting PPIs as a mode of seamless payment due to the cash liquidity crisis. However, PPI players saw a dip in volume and value in March 2018 as the central bank’s strict KYC norms came into place. The regulator’s revised directions for PPIs may be considered as a step towards making PPIs a crucial part of the financial services industry and bringing them on a par with banks. Additionally, these directions will help in making the economy more financially inclusive. The efforts of the PPI industry towards building a reliable, secure and robust payments system have increased the confidence of the regulator and other stakeholders in the industry’s ability to play a larger role in the financial services ecosystem. Interoperability is likely to transform the overall payments ecosystem in the near future, leading to the following changes:
Partner, India FinTech Leader, PwC India
Partner and Leader
Payments Transformation, PwC India
Amit G Jain
Director, Financial Services, Regulatory, PwC India