Prepaid Payment Instruments A Discussion on Draft Guidelines by RBI

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.

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

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

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 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

At a Glance

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

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

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

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

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