New pre-paid instrument to boost low-value digital transactions

MUMBAI: In a move that will boost low-value electronic payments, RBI said that it will allow pre-paid instruments up to Rs 10,000 to be issued with minimum customer details.


The fact that only 'essential minimum details sourced from customer' are required would mean that the onerous 'know your customer' documentation is not required. Conducting KYC for prepaid instruments, which include digital wallets, had become a major challenge for payment companies after the Supreme Court struck down the usage of Aadhaar for remote authentication of accounts.

“Prepaid instruments have been playing an important role in promoting digital payments. To further facilitate usage, it is proposed to introduce a new type of PPI which can be used only for the purchase of goods and services,” said RBI governor Shaktikanta Das while addressing the media after the monetary policy announcement. RBI will come out with the guidelines for the new PPIs by December 31, 2019.

What makes this pre-paid instrument different from those that have been in existence until now is that the loading and reloading of this new instrument can only be done from a bank account and can only be used for making digital transactions which will include bill payments and merchant payments.

In the past, RBI did allow users to create low-value wallets with basic KYC. However, concerned that fraudsters were using the wallets to load money by gaining illegal access to third-party accounts, RBI made KYC mandatory for all wallets.

The new rules, by restrict usage of the wallets, do not make them attractive for fraudsters. For instance, the user cannot do a 'cash out' and balances need to be spent with authorised merchants.

From what has been proposed, the new instrument sounds familiar to the semi closed-loop prepaid instrument guidelines announced several years earlier. The semi closed-loop instruments could only be used at a group of clearly identified merchant locations/ establishments which contract specifically with the issuer to accept the payment instrument. Also, they do not permit cash withdrawal.