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Prepaid payment instruments

Topics Covered:

  1. Inclusive growth and issues arising from it.


Prepaid payment instruments


What to study?

For Prelims: What are PPIs and how are they regulated?

For Mains: Significance and role of PPIs, regulatory challenges faced by them.


Context: Reserve Bank of India (RBI) has imposed a monetary penalty on five Pre-Paid Payment Instrument (PPI) issuers for violating its regulatory guidelines under provisions of payment and settlement Systems act 2007.



As per RBI directions, PPI issuers were required to complete the KYC process by February 28, 2019. PPIs or mobile wallets were mandated by the banking regulator in October 2017 to capture all information required under the know-your-customer (KYC) guidelines by end February.


What are PPIs?

Prepaid payment instruments are those which facilitate purchase of goods and services against the value stored on such instruments. Value stored on them is paid by the holder using a medium (cash, debit card, credit card etc).

These are generally issued in the form of smart cards, mobile wallets, paper vouchers, internet accounts/wallets.



  • Prepaid payment instruments (PPIs) come with a pre-loaded value and in some cases a pre-defined purpose of payment.
  • They facilitate the purchase of goods and services as well as inter-personal remittance transactions such as sending money to a friend or a family member.
  • These payment instruments are licensed and regulated by the Reserve Bank of India.
  • There are three types of PPIs—closed system PPIs, semi-closed system PPIs and open system PPIs.
  • The most common example of a closed system PPI is a brand-specific gift card. Such cards, physical or otherwise, can be used only at specific locations, and cannot be used to transfer funds from one account to another.


Sources: the hindu.