What are Prepaid Payment Instruments (PPIs): Meaning & Benefits

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In this blog, we will understand the concept of Prepaid Payment Instruments (PPIs) and PPI interoperability. We will also try to understand what it could mean to Indian businesses and masses. After demonetisation, the prepaid payments instruments (PPI) industry saw some massive growth. However, there were too many players in the market. Moreover, funds could only be transferred between two wallets of the same issuer. (For instance, Paytm users can only send money to another Paytm wallet, not a Mobikwik wallet) This was until PPI interoperability came into the picture, of course. But before we dive into that, let’s look at the basics.

What Are Prepaid Payment Instruments (PPIs)?

As the name suggests, Prepaid Payment Instruments or PPIs are cards or digital wallets that allow users to:

- Purchase goods and services

- Enable remittance facilities

- Conduct financial transactions

- Transfer funds to family and friends

They’re also called PPI digital wallets or PPI e-wallets. These instruments are typically preloaded with funds in order to enable a user to make payment. Paytm, PhonePe, Mobikwik, etc. are some popular examples. The companies offering these wallets as offerings are called Prepaid Payment Instruments (PPIs) Issuers. They permit users to add funds to their app wallets and use them for various transactional purposes. Over the last couple of years, Prepaid Payment Instruments have become quite popular in the Indian market as they’re a convenient alternative to cash transactions.

Prepaid Payment Instruments (PPIs) - A Convenient Alternative To Cash

Types of Prepaid Payment Instruments (PPIs)

Prepaid Payment Instruments (PPIs) are instruments that allow users to load funds in advance in e-wallets and use them for digital payments, purchases, remittances, or withdrawals (depending on the type). In India, PPIs are regulated by the Reserve Bank of India under the PPI Master Directions.

1. Closed PPIs

Closed PPIs are simply gift cards issued by a company, and they can only be used to purchase goods and services from the same entity that issued them. They cannot be used outside that specific ecosystem, i.e., the issuing company. It is usable only on the issue’s platform; you cannot withdraw the cash or transfer it from the e-wallet to another bank account. In this, no third-party merchant can use the card, as it is generally issued as a voucher or store credit, allowing buyers to use it easily and quickly. Closed PPIs are not considered formal PPIs under the guidelines of the Reserve Bank of India, as they do not involve third-party payments. Examples include: – Amazon Pay balance, which can only be used on Amazon; Myntra gift cards; Flipkart gift vouchers; and other branch-specific gift cards.

2. Semi-Closed PPIs

Semi-closed PPIs can be used at a group of merchants that have a specific agreement with the PPI issuer. These are the most common wallet-type PPIs in India. It is a type of payment option that does not allow users to withdraw cash, unless in specific RBI-approved cases. The e-wallets are usually semi-closed PPIs, and they can be used for online and offline merchant payments. Subject to KYC norms, the prescribed loading limits are optimised.

Types of Semi-Closed PPIs

Small PPI (Minimum KYC): In a small PPI, the user is required to do OTP-based verification with a monthly loading cap, like ₹10,000. Once the user adds funds to the specific app they are using, it cannot be transferred to bank accounts and has a validity of 1 year.
Full-KYC PPI: In full KYC, the user has to go through complete KYC verification in order to have a higher balance limit, up to ₹2 lakh as per current RBI norms. In full KYC, there is a fund transfer allowed, i.e., wallet-to-wallet/bank transfer. Paytm Wallet, MobiKwik Wallet, or PhonePe Wallet.

3. Open System PPIs

Open PPIs are prepaid cards issued only by banks and can be used for purchasing goods and services, including fund transfers and cash withdrawals. They work similarly to debit cards but require funds to be preloaded. It is easily usable at any merchant accepting card networks, allows quick ATM withdrawals, and every user using the card is fully KYC-compliant. Examples include RuPay prepaid cards, Visa prepaid cards and Mastercard prepaid cards. These cards are usually used for overseas travel, salary, or as corporate expense cards.

What Is PPI Interoperability?

In basic terms, interoperability means enabling products or systems to work together and use each other’s capabilities to strengthen the entire ecosystem. Interoperability of PPIs works on the same principles. It gives consumers with full-KYC accounts the ability to use their digital wallet(s) to

- Make a payment at any POS (point-of-sale) site that has the facility to accept online payments

- Withdraw cash from ATMs and POS terminals

- Transfer money from one wallet to another, irrespective of their nature

This also comes regardless of who issues the payment instrument. So, a customer could transfer money from a Paytm wallet to a Mobikwik wallet instantly.

PPI (prepaid payment instruments) interoperability features

The basic idea behind making PPIs interoperable came after the RBI tested the same mechanics on UPI. One platform to unify different payment modes? It was a recipe for success. On the hypothesis tested, they’re now confident that by making PPI interoperable in nature, all the respective stakeholder levels including consumers, merchants, banks, and issuers, everyone will enjoy the following benefits. All in all, while the term PPI interoperability is quite the tongue twister, it will simplify payments just the same.

RBI Regulations On Prepaid Payment Instruments (PPI) Interoperability

The RBI has been stressing on making PPIs interoperable amongst the issuing and acquiring entities given the,

- Feeble usage of payment instruments such as cards and e-wallets by the Indian citizens

- Presence of an inadequate payment acceptance infrastructure in the country

To address these issues and make PPIs an integral part of India’s larger financial services ecosystem, here’s what the RBI’s PPI interoperability mandate states.

- PPIs used for transportation such as metro or other public transport cards, will not come under interoperability

- Entities issuing gift cards, meal cards, and MTS can choose whether or not to make their cards interoperable

- PPI Interoperability will be applicable to only those customers with complete-KYC accounts

- Customers with minimum or partial KYC will not be able to take benefits of interoperability

- PPI issuers will have to adhere to all the requirements as stated by the card networks/UPI including
  - - Type and criteria of membership
  - - Merchant on-boarding
  - - Adhering to various standards
  - - Rules and regulations applicable against certain payment systems

- PPI issuers will have to handle all the dispute resolutions and set up customer grievance redressal cells to provide solutions

- Card networks can onboard PPI issuers to join their network

- Non-bank PPI issuers can only participate as members or associate members of authorised card networks

- PPI issuers can facilitate all the basic UPI interoperability features

- PPI issuers will act as Payment System Providers (PSP) in the UPI ecosystem. They will be issued a handle by the NPCI in line with its predefined policies/guidelines
- PPI holders can only be onboarded by their own PPI issuer for UPI. PPI issuers as PSPs cannot onboard customers of any bank or other PPI issuer.

Who is responsible for issuing PPIs? (Prepaid Payment Instruments)

The Reserve Bank of India is the only organisation responsible for granting licences to companies to issue PPIs, setting regulations for PPI operations, safeguarding consumers through security and KYC compliance, and monitoring and controlling PPI issuers.

No Indian company may issue a prepaid card or wallet without first obtaining approval from the Reserve Bank of India, per the Payment and Settlement Systems Act of 2007.

RBI Certified Bank PPI Provider

Below is the list of banks authorised to issue PPIs.

Name of the Banks

Bank of Baroda
Bank of India
Axis Bank Limited
Bank of Maharashtra
Airtel Payments Bank Limited
American Express Banking Corporation
Au Small Finance Bank Limited
Bandhan Bank Limited
Barclays Bank PLC
Canara Bank
Central Bank of India
Citi Bank N.A.
City Union Bank Limited
DBS Bank India Limited
DCB Bank Limited
HDFC Bank Limited
ICICI Bank Limited
IDBI Bank Limited
IDFC FIRST Bank Limited
Indian Bank
Indian Overseas Bank
IndusInd Bank Limited
Jana Small Finance Bank Limited
Jio Payments Bank Limited
Karnataka Bank Limited
Karur Vysya Bank Limited
State Bank of India
Kerala Gramin Bank
Kotak Mahindra Bank Limited
Lakshmi Vilas Bank Limited
NSDL Payments Bank Limited
Pragathi Krishna Gramin Bank
Punjab National Bank
Punjab & Sind Bank
Standard Chartered Bank
SBM BANK (INDIA) LTD.
South Indian Bank Limited
Paytm Payments Bank Limited
Tamilnad Mercantile Bank Limited
The Ahmedabad Mercantile Co-operative Bank Limited
The Catholic Syrian Bank Limited
The Dhanlaxmi Bank Limited
The Federal Bank Limited
The Gujarat State Co-operative Bank Limited
The New India Co-operative Bank Limited
The Rajasthan State Co-operative Bank Ltd.
TJSB Sahakari Bank Limited
RBL Bank Limited
The Saraswat Co-operative Bank Limited
UCO Bank
Union Bank of India
Utkarsh Small Finance Bank Limited (Only for FASTag issuance facility)
Yes Bank Limited

RBI Licensed Non-Bank PPI Provider

Below is the list of non-bank Prepaid Payment Instruments (PPI) in India.

The Clearing Corporation of India Ltd.
AMC Repo Clearing Limited
National Payments Corporation of India (NPCI) / NPCI Bharat BillPay Limited
Infibeam Avenues Limited (formerly Avenues India Pvt Ltd)
CSC e-Governance Services India Ltd
Euronet Services India Pvt Ltd
IndiaIdeas.com Limited
Ebix Payment Services Pvt Ltd (formerly ItzCash Card Ltd)
Spice Money Limited
Worldline ePayments India Pvt Ltd
One Mobikwik Systems Limited
PayU Payments Pvt Ltd
PhonePe Private Limited
American Express Banking Corp., USA (non-bank issuer in India)
Diners Club International Ltd., USA (non-bank issuer)
MasterCard Asia/Pacific Pte. Ltd. (non-bank issuer)
Amazon Pay (India) Private Limited
Zoho Payment Technologies Private Limited

PPI Limit in India

Type of PPI	Max Limit	Reload Available	Cash Withdrawal
Small PPI	₹10,000	Yes	No
Full-KYC PPI	₹2,00,000	Yes	Yes
MTS PPI	₹3,000	Yes	No
Gift PPI	₹10,000	No	No

What Are The Perks Of PPI Interoperability?

PPI interoperability is expected to be the next game-changer for the payments industry. In fact, it may propel the payment ecosystem to be more innovative and competitive. The key impact of PPI interoperability on different stakeholders is as follows.

For Merchants

Accept More Wallet Payments

At present, mobile wallet service providers need to constantly add more merchants to their network to get more consumers to use their wallets in various instances. With PPI interoperability, all UPI-accepting merchants would be able to accept payments via their wallets. This means,

- More consumer-onboarding

- Enhanced transaction volume

- Higher business revenue

Greater Digital Payment Adoption

Looking at the current economics, it’s quite evident that the interoperability of PPIs will lead to a greater digital payment adoption and usage in India. This will also boost the value and utility of the payment instruments among users. Resultantly increasing the merchant’s customer base.

Less Cash Management

Since all transactions will commence between wallets or wallet-to-bank accounts, the need to manage cash and keeping a track of transactions is significantly reduced. Small merchants can easily reconcile their accounts using the PPI apps and avoid the need to regularly manage and deposit the collected cash in the bank. Related Read: Reconciling Your Payments as a Merchant

Effective Substitute To Bank Accounts

The very nature of PPIs, especially prepaid cards and e-wallets, is quite similar to that of bank accounts. Only that these PPIs are far more effective, cheaper, and a faster substitute for bank accounts. Merchants can conveniently use these bank-account-like-alternatives to commence many basic business activities. Some of them are as follows.

prepaid payment instruments (PPI) are substitutes to bank accounts

And the list goes on!

Increased Limit From 1 Lakh to 2 Lakhs

Many merchants today use wallets to accept payments from customers. However, the earlier wallet limit of INR 1 lakh restricted them from using the wallets to their maximum potential. Moreover, many wallets swept the extra funds into FDs at the payments bank’s end. Now, the limit has been extended to INR 2 lakhs (for full-KYC PPIs). This not only ensures that merchants can accept more payments from consumers including high-ticket transactions.

No Need For Multiple Wallet Integrations

With interoperability in the picture now, small merchants (or one-man businesses) don’t need to integrate specific wallets to accept payments. They can now accept payment in any wallet of their choice from any wallet that a consumer uses. Naturally, it is not feasible for medium or large businesses to accept payments like that. For starters, they need to accept payments from various payment modes like cards and net banking too. On top of that, they need easy-to-use reconciliation and settlement services. A payment aggregator like Cashfree Payments accepts payments from multiple wallets. Cashfree allows merchants to accept payment from 120+ payment options with utmost ease and comfort. The payment gateway also,

- Collects funds from all digital sources on behalf of the merchant

- Sends collated funds into merchant account

- Reconciles accounts and ensures seamless accounting

- Offers additional payment acceptance sources like payment links, forms, QR codes, etc

Pro Tip: Sonarqube Unit Test

For Consumers

Highly Consumer-Friendly

From a consumer’s point of view, PPI interoperability will offer higher payment convenience with less restrictions. Consumers will have the liberty to easily and swiftly transfer funds across different wallets irrespective of the issuer.

Higher Financial Inclusion And Penetration

With PPIs becoming interoperable, they’ll be at par with a bank’s savings account. This will, in turn, make PPIs more appealing to the citizens of India and encourage more digital penetration. Looking at the scope this will effectively benefit the unbanked and underbanked section of the population. To give you an example, with PPI interoperability coming into the picture, consumers will be able to

- Avail small value loans

- Blue-collar workers could receive salaries/wages directly into their PPI wallets

- Do micro-savings and achieve life goals

- make small-ticket size payments, both online and offline

The concept will also help women become more financially independent. They’ll have access to useful and affordable financial products and services that will help them make sound financial investment decisions and make small-ticket purchases without anyone’s help.

Encourage More Innovation

As the Fintech market innovates and ships new and better prepaid payment instruments in the Indian market, more consumers will benefit in the process. They’ll have access to more innovative financial products and better means to manage their finances. Pro Tip: What Is softPOS?

Seek Quick Redressals From Issuers

With the introduction of PPI interoperability, consumers will now be able to seek redressal against any issues faced directly by the issuer. And, in the same mechanics as defined by the card network(s) or National Payments Corporation of India (NPCI) The RBI mandates this in their recent report defining the guidelines that follow PPI Interoperability in India.

Higher Use Cases

By making prepaid payment instruments interoperable in nature, consumers will have more power to leverage PPIs and enjoy more financial freedom.

For PPI Issuers

Becoming Quasi-Banks

With the introduction of PPI interoperability, PPI issuers have become quasi banks in terms of payments. Meaning, they’ll be able to offer many, if not all, banking services to consumers along with many additional benefits.

Better Access To Payment Infrastructure

PPI issuers will enjoy better access to the Indian payments infrastructure. Moreover, their dependency on the bank (for many minor and major services, such as access, settlement, etc.) will also reduce significantly.

Additional Sources Of Revenue

Interoperability brings additional sources of revenue to the plate for PPI issuers. They can gain significantly in terms of interchange for UPI and prepaid cards, transaction costs, and via other similar methods.

Additional sources of Income for PPI issuers

However, they’ll need to infuse additional investment to set up the necessary infrastructure to benefit from these additional revenue sources.

Challenges PPI Players Need to Watch Out For

While advantages are plenty, many challenges come along the way.

Provide Satisfying Customer Support

Owing to the RBI guidelines, PPI players will need to build a robust customer support system that entertains even the tiniest of customer complaints. If not done properly, one bad experience is enough to scare customers off to cash transactions and steer them from coming back.

Easy Onboarding Processes

Every financial segment today is innovating its onboarding process. Owing to this, it is extremely necessary that even PPI players build a faster and easier onboarding process. This will keep potential customers from considering other online financial options, especially opening digital accounts offered by neobanks.

Improve And Simplify KYC Processes

Even though the KYC process today has improved manifold, there still exists a huge scope to upgrade and build a much better KYC process. PPI players need to tap into this space and build better and faster KYC solutions. For instance, provide a quick, two-step online KYC process that helps onboard customers in a matter of seconds.

Boost To Digital Payments And Greater Financial Inclusion

Here’s how interoperability will transform the overall payments ecosystem in the coming future, causing the below-mentioned changes, for good.

- Provide easy access to payment instruments such as cards, wallets, and UPI to the unbanked and underbanked population of the country

- Increase financial inclusion and adoption of digital payment methods throughout the nation

- With NPCI making UPI 2.0 live, peer-to-merchant transactions will significantly increase, even in tier 2 and 3 parts of India

- The entire payments ecosystem will become more competitive, creating a larger playing field for the merchants and PPI players

Interoperability is the Road To The Future

As cards and wallets become more functional and feature-rich in nature, thanks to the implementation of interoperability in PPIs, it’s only a matter of time to see the PPI industry see a boom in its usage as UPI. The regulators and stakeholders are confident that this move will build a more secure, reliable, and robust payments system that will not only play a bigger role in the financial services ecosystem and benefit all the players involved.

PPI Interoperability: How It Connects Billion Dollar Mobile Wallet Industry in India

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