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Consider the following statements regarding Pre-paid Payment Instruments (PPIs) in India:
- These are payment instruments that facilitate the purchase of goods and services.
- Only those companies incorporated in India can issue PPIs in India.
- These instruments do not permit cash withdrawal or redemption.
Which of the statements given above is/are correct?
- a)1 and 2 only
- b)2 and 3 only
- c)1 only
- d)1, 2 and 3
Correct answer is option 'A'. Can you explain this answer?
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Most Upvoted Answer
Consider the following statements regarding Pre-paid Payment Instrumen...
- Pre-paid Payment Instruments (PPIs) are defined in the RBI Guidelines issued under the Payment and Settlements Systems Act, 2005 as payment instruments that facilitate the purchase of goods and services, including funds transfer, against the value stored on such instruments. Hence, statement 1 is correct.
- 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.
- The Payment and Settlement Systems Act, 2007 provides for the regulation and supervision of PPIs in India. Reserve Bank of India (RBI) is the regulatory authority for this purpose.
- RBI has broadly classified the PPIs into three categories:
- Closed System Payment Instruments
(i) These are issued by an entity for facilitating the purchase of goods and services from it.
(ii) They do not permit cash withdrawal or redemption.
(iii) They are not classified as payment systems. Hence, RBI approval is not required for issuing them.
(iv) E.g. online shopping vouchers by Flipkart, Amazon etc. - Semi-Closed System Payment Instruments
(i) Besides the purchase of goods and services, they can be used for financial services at a group of clearly identified merchant locations/ establishments which have a specific contract with the issuer to accept the payment instruments.
(ii) They do not permit cash withdrawal or redemption by the holder.
(iii) Instruments of upto Rs.1,00,000/- can be created by with full Know Your Client norms (KYC) and can be reloaded. - Open System Payment Instruments
(i) Besides, purchase of goods and services, financial services like funds transfer at any card accepting merchant locations they also permit cash withdrawal at ATMs / Banking Correspondents (BCs). Hence, statement 3 is not correct.
(ii) However, cash withdrawal at POS is permitted only upto a certain limit set by RBI. - Who can issue prepaid payment instruments in India?
(i) Only those companies incorporated in India and have a minimum paid-up capital of Rs. 5 crore and minimum positive net worth of Rs. 1 crore at all times are permitted to issue PPIs in India. Hence, statement 2 is correct.
(ii) Banks who comply with the eligibility criteria are permitted to issue all categories of PPIs. However, only those banks which have been permitted to provide Mobile Banking Transactions by the Reserve Bank of India are permitted to launch mobile-based pre-paid payment instruments (mobile wallets & mobile accounts).
(iii) Non-Banking Financial Companies (NBFCs) and other persons are permitted to issue only closed and semi-closed system payment instruments, including mobile phone-based pre-paid payment instruments.
(iv) Non-bank persons issuing payment instruments are required to maintain their outstanding balance in an escrow account with any one of the scheduled commercial banks
- Closed System Payment Instruments
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Consider the following statements regarding Pre-paid Payment Instrumen...
Explanation:
- Pre-paid Payment Instruments (PPIs) in India: Pre-paid Payment Instruments (PPIs) are a type of digital or electronic payment instrument that allows users to load money into an account and use it for purchasing goods and services. PPIs are regulated by the Reserve Bank of India (RBI) under the Payment and Settlement Systems Act, 2007.
- Statement 1: These are payment instruments that facilitate the purchase of goods and services. This statement is correct. PPIs are specifically designed to enable users to make payments for goods and services. Users can load money into their PPI account and use it for making payments at various merchants or service providers.
- Statement 2: Only those companies incorporated in India can issue PPIs in India. This statement is incorrect. Companies incorporated in India, as well as those incorporated outside India, can issue PPIs in India, subject to the approval of the RBI. The RBI has issued guidelines for the issuance and operation of PPIs, which include eligibility criteria for different types of PPI issuers.
- Statement 3: These instruments do not permit cash withdrawal or redemption. This statement is correct. PPIs are typically designed for making payments and do not allow users to withdraw cash or redeem the loaded amount. However, there are certain types of PPIs, such as mobile wallets, that may allow users to transfer funds to their bank accounts or make withdrawals at designated outlets.
- Conclusion: Therefore, only statement 1 and 2 are correct. Statement 3 is incorrect. Hence, the correct answer is option 'A' - 1 and 2 only.
- Pre-paid Payment Instruments (PPIs) in India: Pre-paid Payment Instruments (PPIs) are a type of digital or electronic payment instrument that allows users to load money into an account and use it for purchasing goods and services. PPIs are regulated by the Reserve Bank of India (RBI) under the Payment and Settlement Systems Act, 2007.
- Statement 1: These are payment instruments that facilitate the purchase of goods and services. This statement is correct. PPIs are specifically designed to enable users to make payments for goods and services. Users can load money into their PPI account and use it for making payments at various merchants or service providers.
- Statement 2: Only those companies incorporated in India can issue PPIs in India. This statement is incorrect. Companies incorporated in India, as well as those incorporated outside India, can issue PPIs in India, subject to the approval of the RBI. The RBI has issued guidelines for the issuance and operation of PPIs, which include eligibility criteria for different types of PPI issuers.
- Statement 3: These instruments do not permit cash withdrawal or redemption. This statement is correct. PPIs are typically designed for making payments and do not allow users to withdraw cash or redeem the loaded amount. However, there are certain types of PPIs, such as mobile wallets, that may allow users to transfer funds to their bank accounts or make withdrawals at designated outlets.
- Conclusion: Therefore, only statement 1 and 2 are correct. Statement 3 is incorrect. Hence, the correct answer is option 'A' - 1 and 2 only.
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