The Reserve Bank of India (RBI) has issued guidelines for regulation and supervision of the system of issuance of pre-paid payment instruments in the country and to ensure development of the payment and settlement systems in a prudent and customer friendly manner.
These guidelines lay down the eligibility criteria and the basic conditions for payment system operators involved in the issuance of pre-paid payment instruments in the country.
All persons seeking to operate payment systems involved in the issuance of pre-paid payment instruments in India shall comply with these guidelines, RBI said in a release.
''All persons proposing to operate payment systems involved in the issuance of prepaid payment instruments shall seek authorisation from the department of payment and settlement systems, Reserve Bank of India, under the Payment and Settlement Systems Act, 2007,'' RBI said in a notification.
All persons currently operating such payment systems shall comply with the guidelines within three months from the date of issuance of these guidelines.
Banks and non-bank entities have been issuing pre-paid payment instruments in the country. Hitherto only banks proposing to issue pre-paid payment instruments were approaching Reserve Bank for authorisation. Consequent to the passing of Payment and Settlement Systems Act 2007, all persons currently operating payment systems involved in the issuance of pre-paid payment instruments and those proposing to operate such systems would have to approach Reserve Bank for authorisation. In the emerging scenario, it is imperative to have a set of guidelines for pre-paid payment instruments that would cover both banks and non-bank persons, to ensure orderly development and operation of pre-paid payment instruments in the country. Reserve Bank of India has, therefore, brought out these operating guidelines. These guidelines lay down the basic eligibility criteria and the conditions for operating such payment systems in the country.
Persons operating the payment systems issuing pre-paid payment instruments to individuals/organisations should retain the money collected and make payment to the merchants who are part of the acceptance arrangement directly, or through a settlement arrangement.
The value stored on such instruments represents the value paid for by the holders by cash, by debit to a bank account, or by credit card. The pre-paid instruments can be issued as smart cards, magnetic stripe cards, internet accounts, internet wallets, mobile accounts, mobile wallets, paper vouchers and any such instrument which can be used to access the pre-paid amount (collectively called payment instruments).
The pre-paid payment instruments that can be issued in the country are classified under three categories viz. (i) Closed system payment instruments (ii) Semi-closed system payment instruments and (iii) Open system payment instruments.
Closed system payment instruments are issued by a person for facilitating the purchase of goods and services from him/it. These instruments do not permit cash withdrawal or redemption. As these instruments do not facilitate payments and settlement for third party services, issue and operation of such instruments are not classified as payment systems.
Semi-closed system payment instruments are payment instruments which are redeemable at a group of clearly identified merchant locations/establishments which contract specifically with the issuer to accept the payment instruments. These instruments do not permit cash withdrawal or redemption by the holder.
Open system payment instruments are payment instruments which can be used for purchase of goods and services at any card accepting merchant locations (point of sale terminals) and also permit cash withdrawal at ATMs.
For the purpose of these guidelines `Net Owned Fund' (NOF) will consist of paid-up equity capital, free reserves, balance in share premium account and capital reserves representing surplus arising out of sale proceeds of assets but not reserves created by revaluation of assets. From the aggregate of items so computed, the NOF would be arrived at after deducting the accumulated loss balance and book value of intangible assets, if any. The NOF should be computed on the basis of last audited Balance Sheet and any capital raised after the balance sheet date should not be accounted for while computing NOF.
All 'limits' in the value of instruments stated in the guidelines, indicate the maximum value of such instruments that can be issued to any holder.
Banks who comply with the eligibility criteria would be permitted to issue all categories of pre-paid payment instruments.
Only banks which have been permitted to provide mobile banking transactions by the Reserve Bank of India shall be permitted to launch mobile based pre-paid payment instruments (mobile wallets and mobile accounts).
Non-banking financial companies (NBFCs) and other persons would be permitted to issue only semi-closed system payment instruments.
Persons authorised under Foreign Exchange Management Act (FEMA) to issue foreign exchange prepaid payment instruments and where such persons issue such instruments as participants of payment systems authorised by the Reserve Bank of India, are exempt from the purview of these guidelines. The use of such payment instruments shall be limited to permissible current account transactions and subject to the prescribed limits under the Foreign Exchange Management (Current Account Transactions) Rules, 2000, as amended from time to time.
Banks and non-banking financial companies which comply with the capital adequacy requirements prescribed by Reserve Bank of India from time-to-time, shall be permitted to issue pre-paid payment instruments.
All other persons shall have a minimum paid-up capital of Rs1 crore and positive net owned funds.
Safeguards against money laundering
The guidelines on `Know Your Customer/Anti-Money Laundering/Combating Financing of Terrorism' guidelines issued by the Reserve Bank of India to banks, from time to time, shall apply mutatis mutandis to all the persons issuing pre-paid payment instruments. Necessary systems shall be put in place to ensure compliance with these guidelines, the RBI release said.
The use of pre-paid payment instruments for cross border transactions shall not be permitted except for the payment instruments provided at paragraph 4.1 of the guidelines.
The maximum value of any pre-paid payment instruments (where specific limits
have not been prescribed including the amount transferred shall not exceed Rs50,000.
Types of pre-paid payment instruments
Semi-closed system payment instruments up to Rs1,000 may be issued against any identity document furnished by the customer subject to reporting of annual turnover/suspicious transactions. It shall be ensured that under no circumstances, more than one active instrument is issued to the same holder by the same issuer.
Pre-paid payment instruments up to Rs5,000 can be issued by accepting any 'officially valid document' defined under Rule 2(d) of the Prevention of Money Laundering Act, as proof of identity. Such instruments shall not permit cash withdrawal.
Semi-closed system payment instruments which permit only payment of utility bills/ essential services up to a limit of Rs10,000 can be issued without any KYC being undertaken by the issuer. The persons issuing such instruments may ensure that these instruments are made acceptable only at institutions which maintain the full identity of the customers. The utility bills/essential services shall include only electricity bills, water bills, telephone/mobile phone bills, insurance premium, cooking gas payments, rental for internet/broadband connections, cable/DTH subscriptions and citizen services by government or government bodies.
Semi-closed system payment instruments can be issued to institutions/companies for further issuance by these institutions/companies to their employees or other beneficiaries. Persons issuing such payment instruments shall ensure that these institutions/companies maintain the full details of the employees or beneficiaries to whom such payment instruments are issued. The maximum value for which such payment instruments can be issued by the institutions/companies shall not exceed Rs5,000.
Persons issuing pre-paid payment instruments shall maintain a log of all the transactions undertaken using these instruments. These data should be available for scrutiny by the Reserve Bank or any other agency / agencies as may be advised by the Reserve Bank. These persons shall also file suspicious transaction report (STR) to financial intelligence unit – India (FIU-IND).
Deployment of money collected
The money collected against issuance of pre-paid payment instruments at a point of time could be substantial. Further, the turnover of funds may also be rapid. The confidence of public and merchant establishments on pre-paid instruments schemes depends on the timely settlement of claims arising from use of such instruments. To ensure timely settlement, the issuers shall invest the funds collected only as provided here-in.
For the schemes operated by banks, the outstanding balance shall be part of the 'net demand and time liabilities' for the purpose of maintenance of reserve requirements. This position will be computed on the basis of the balances appearing in the books of the bank as on the date of reporting.
Other non-bank persons issuing payment instruments are required to maintain their outstanding balance in an escrow account with any scheduled commercial bank subject to the following conditions:
i) The amount so maintained shall be used only for making payments to the participating merchant establishments.
ii) No interest is payable by the bank on such balances.
iii) A quarterly certificate from the auditors shall be submitted certifying that the entity has been maintaining adequate balance in the account to cover the outstanding volume of payment instruments issued.
iv) The entity shall also submit an annual certificate, as above, coinciding with the accounting year of the entity to the Reserve Bank of India.
v) Adequate records indicating the daily position of the value of instrumentsoutstanding vis-à-vis balances maintained with the banks in the escrowaccounts shall be made available for scrutiny to the Reserve Bank or the bank where the account is maintained on demand.
As an exception to the above, the entity can enter into an agreement with the bank where escrow account is maintained, to transfer "core portion" of the amount, in the escrow account to a separate account on which interest is payable, subject to the following:-
i) The bank shall satisfy itself that the amount deposited represents the "core portion" after due verification of necessary documents.
ii) The amount shall be linked to the escrow account, ie, the amounts held in the interest bearing account shall be available to the bank, to meet payment requirements of the entity, in case of any shortfall in the escrow account.
iii) This facility is permissible to persons who have been in business for at least one year and whose accounts have been duly audited for the full accounting year.
No loan is permissible against such deposits. Banks shall not issue any deposit receipts or mark any lien on the amount held in such form of deposits.
RBI said the approach paper seeks to ensure orderly development and operation of the pre-paid payment instruments issued by banks and non-bank entities, as they are gaining popularity in the country as a means of payment.
The draft guidelines, prepared by Reserve Bank based on the comments received from banks, existing issuers of pre-paid payment instruments, general public and a series of meetings with various stake holders, was placed on the RBI website for public comments. After taking into account further comments/suggestions received, RBI has finalised the 'guidelines for prepaid payment instruments in India'.