New prepaid instrument to boost low value digital transactions

MUMBAI: In a movement that will boost low-value electronic payments, RBI said it will allow issuing prepaid instruments of up to Rs 10,000 with minimal customer details.

The fact that only 'minimum essential details obtained from the client' is required would mean that the burdensome documentation of 'knowing your client' is not required. Carrying out KYC for prepaid instruments, including digital wallets, had become a major challenge for payment companies after the Supreme Court eliminated the use of Aadhaar for remote account authentication.

“Prepaid instruments have played an important role in the promotion of digital payments. To further facilitate the use, it is proposed to introduce a new type of PPI that can be used only for the purchase of goods and services, said RBI Governor Shaktikanta Das, while addressing the media after the announcement of monetary policy . RBI will publish the guidelines for the new PPIs before December 31, 2019.

What makes this prepaid instrument different from those that existed until now is that the loading and recharging of this new instrument can only be done from a bank account and can only be used to perform digital transactions that will include bill payments and business payments .

In the past, RBI allowed users to create low-value wallets with basic KYC. However, worried that scammers would use wallets to charge money while obtaining illegal access to third-party accounts, RBI made KYC mandatory for all wallets.

The new rules, by restricting the use of wallets, do not make them attractive to scammers. For example, the user cannot make a 'withdrawal' and balances must be spent with authorized merchants.

For what has been proposed, the new instrument sounds familiar to the semi-closed prepaid circuit guidelines announced several years earlier. Semi-closed circuit instruments can only be used in a group of clearly identified locations/commercial establishments that are specifically contracted with the issuer to accept the payment instrument. In addition, they do not allow cash withdrawal.