Prepaid Instruments in India Feb 27

8/3/2019 Prepaid Instruments in India Feb 27

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Prepaid Payment Instruments

A Discussion on

Draft Guidelines by RBI


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Salient features

Eligibility

Banking & non-banking entities, current or planned are covered

Only banks, which have Mobile Banking approval are permitted to launchmobile based prepaid instruments

Non Banks would be permitted to issue only closed system prepaid paymentinstruments & 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 Rs50,000/-.

Semi-Closed System Payment Instruments up to Rs 1000/- may be issuedwithout any KYC subject to reporting Issuer to ensure that, more than onecard is issued to the same person.

Semi-closed Prepaid payment instruments which permit only payment ofutility bills/ essential services up to a limit of Rs 10,000/- can be issuedwithout any KYC being undertaken by the issuer.


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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 theRBI.

Records regarding daily position of the value of instruments outstanding vis--visbalances maintained in the escrow made available for the scrutiny to the RBI orthe 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 retailagents & issuers outlets against cash/ debit cards/ credit card.

Banks & NBFCs can issue & reload at branches against payment by cash/ debit tobank 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 permonth.

Holders should be adequately cautioned in advance regarding the expiry date


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Definitions

Redemption

Redemption up to full outstanding value at any participating merchant upto expiry date

Redemption in cash only for open system instruments

Anyone can redeem the outstanding balance in cash within the expirydate, if the scheme (issuer) is being wound-up or directed by the ReserveBank to be discontinued.

Where redemption is provided, the redemption value shall not be inexcess of the amount outstanding or the face value (loading limit) for theinstrument, whichever is lower.

Fraud Prevention, Security Standards & Customer Protection

Issuers shall put in place adequate information & data securityinfrastructure, & systems for prevention & detection of frauds

Disclosure of important information to the customer preferably in locallanguage including: Customer service telephone number & website URL.

Expiry period & all other terms & conditions

Customer service telephone number & website URL.


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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-open System 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


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At a Glance

Semi Closed Semi Open Mobile prepaid

Cash In (Buying) Yes Yes Yes

Cash Out

(Encashment)

No No No

Usage Can be used at affiliate merchant

outlets that have a contract with

the issuer to accept such

instruments.

Can be used at any card

accepting merchant locations

(Merchants with POS terminals).

For eg: Food card issued byHDFC Bank.

Prepaid talk time issued by mobile

operators to its subscribers. Can be

used to purchase mobile air time or

mobile VAS

only.

Eligibility Requires Authorization from RBI Requires Authorization from RBI No authorization from RBI needed

as long as the prepaid instrument is

used for purchase of airtime or

mobile VAS only and not for

purchase of other goods and

services.

Interest payment Not Mandated Not Mandated Not MandatedReloadable Yes Yes Yes

Return of Balance Yes Yes Yes


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Discussion Points

If Bank & non-Bank service provider wish to work together,then the suggested process is BanktakesaBoardapproval

Confirms that theentity hasfulfilledallrequirements

Writes to DPSSfora case by caseapproval

NOF waived where stipulated ESCROW is maintained Software & intangibleassets (such as IPR, Brandvalueetc.) area

majorpartofthe Net Worth ofthe Serviceprovidersin thisfield&deductionofthesame while calculatingNOF , willmeansareducedNOF & maybe veinsome cases

Righto

verE

scrow Account balance Acquirerwillhavefirstright

Holderwillhavenextright

Issuerwillhavelastright


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Discussion Points

Instruments issued without any KYC Currentlypermitonlypaymentof utility bills & essentialservices

Need to be more broad based including merchants from organisedsectors like Movie halls / Hospitals / Hotelchains / Retailchains

Similar merchants to be included in Semi Closed

Increase in limits for cases wherein Card is issued withlimited KYC Current limits are Rs. 5,000

Confirmation on Limits We assume theyare on a perCard per day basis

If not, we needclarityon what the basis is

E.g. Semi-closed for utilitypayments is limited to Rs. 10,000

Expiry Shouldbe terminated immediatelyafter expirydate

Refund/ transferto newinstrumentdepends on Issuer

Marketforces will notallowunequalcompetition


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Discussion Points

KYC Requirements Semi Closedsystem up to Rs. 1,000issuedwithout KYC

customer may take multiple such Cards & mis-use the system

Views on how this can be controlledin a fool proof manner

Where KYC is to be collected, what is the expected process to

collect & maintain the same KYCforNon cash Reload

Reload atanATM

Reload on internet/ mobile banking

Relaod at branch

For cases wherein Cards can be issued by accepting anyGovernment issued Identity Card as ID proof, if the purchase /

recharge is happening only through any option mentioned above

the same cardshouldto be acceptable ID proof


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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 ?

DS As to be used by banks for sourcing applications for prepaidinstruments similar to credit cards


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Thank You

Prepaid Instruments in India Feb 27

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