What is Prepaid Payment Instruments PPIs in India. Discover Why PPIs Becoming Increasingly Popular.

What is Prepaid Payment Instruments
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Struggling with what is Prepaid Payment Instruments (PPIs) in India? Learn how PPIs work, the benefits they offer, and why they are becoming increasingly popular. Discover how to use PPIs securely and responsibly for convenient payments.

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1. What is Prepaid Payment Instruments or PPIs.

Prepaid Payment Instruments (PPIs) are payment instruments that facilitate the purchase of goods and services, including funds transfer, against the value stored on such instruments.

In simple terms, PPI (Prepaid Payment Instrument) in India refers to a digital or physical payment instrument that you can load with money and use for various transactions, just like a wallet. It allows you to make payments for goods and services without using cash.

Here’s a more simplified explanation with an example:

Imagine you have a mobile phone and you wish to purchase a product online or want to pay for a service. In such a case, instead of using cash or a credit or debit card, you can use a PPI. Let’s say you have a popular digital wallet like Paytm or PhonePe on your phone. You can add money to your wallet by linking it to your bank account or using other methods provided by the wallet service. Once you have money is transferred to your wallet, you can use it to make payments.

Similarly, you can use PPI service for various other day to day transactions such as mobile recharges, bill payments, online shopping, or even transferring money to your friends or family members who also have the same PPI. It provides a convenient way to make digital payments without the need for physical cash or cards.

In order to ensure full safety, security, transparency and protection of customers financial data PPIs are regulated directly by the Reserve Bank of India (RBI).

1.1 What are the Common Types of PPIs in India.

Prepaid payments instruments have become increasingly popular in India as a way of making payments without the need for cash. These instruments allow users to purchase goods and services from merchants and other entities without having to worry about carrying cash. There are a variety of prepaid payment instruments available in India, including debit cards, prepaid cards, mobile wallets, e-wallets, and paper vouchers. Each instrument has its own benefits and features that make it an ideal choice for different types of transactions.

PPIs can be categorized into three types:

A. Closed System Prepaid Payment Instruments PPIs:

These are issued by an entity for facilitating the purchase of goods and services exclusively from that entity or a group of entities under a contractual arrangement.

An example of a closed system PPI in India is a gift card issued by a specific retailer or brand. Let’s say there is a popular clothing store called “Fashion House.” They offer gift cards that customers can purchase and use for shopping exclusively at their stores.

Here are some popular companies offering closed system PPIs in India:

  • Amazon Gift cards,
  • Taj Experiences Gift cards,
  • Domino’s Gift Voucher and Gift cards
  • Reliance digital Gift cards

B. Semi-Closed System Prepaid Payment Instruments PPIs:

These are payment instruments that are redeemable at a group of clearly identified merchants that have a contract with the issuer to accept the instrument.

Example, In India, several companies offer semi-closed system PPIs that allow users to make payments at a network of identified merchants.

  • Paytm: Paytm is a leading digital wallet and payment platform in India.
  • PhonePe: PhonePe is a popular digital payment platform in India.
  • MobiKwik: MobiKwik is a well-known digital wallet and payment solution provider in India.
  • Amazon Pay: Amazon pay is digital payment service launched by Amazon India

C. Open System Prepaid Payment Instruments PPIs:

These are payment instruments that can be used for purchasing goods and services, including financial services, at any merchant accepting cards. Examples include prepaid debit or credit cards issued by banks or non-banking financial companies.

Example of for the companies offering Open System PPIs in India are;

  • Visa: Visa is a globally recognized payment network that offers open system PPIs in collaboration with authorized banks in India.
  • Mastercard: Mastercard is another major payment network that partners with banks in India to issue open system PPIs.
  • RuPay: RuPay is an Indian domestic card scheme operated by the National Payments Corporation of India (NPCI).
  • American Express: American Express (Amex) is a renowned financial services company that issues open system PPIs in India.

2. Can Non-banking financial institutions issue PPIs in India

YES! In India, non-banking financial institutions (NBFCs) have been permitted and authorized by RBI to issue Prepaid Payment Instruments (PPIs) alongside traditional banks. Though the Reserve Bank of India (RBI) has established stringent rules, regulations, and guidelines for the issuance of PPIs to NBFC’s. The RBI also monitors such NBFC and issues circular and guideline from time to time.

3. What are the terms and condition for NBFC to issue PPIs as per RBI

The Reserve Bank of India (RBI) has laid out specific terms and conditions that non-banking financial companies (NBFCs) must comply with to issue Prepaid Payment Instruments (PPIs). These conditions ensure the proper functioning, security, and customer protection of PPIs. Some of the key terms and conditions are as follows:

  • Authorization: NBFCs must obtain explicit authorization from the RBI to issue PPIs. The authorization process involves meeting certain eligibility criteria and fulfilling the necessary regulatory requirements.
  • Capital Adequacy: NBFCs must maintain the prescribed minimum capital adequacy ratio as specified by the RBI. As per the RBI’s regulations, NBFCs in India are required to maintain a minimum capital adequacy ratio of 15%. This means that their capital, comprising of Tier 1 and Tier 2 capital, must be at least 15% of their risk-weighted assets.
  • Customer Identification: NBFCs must comply with the RBI’s guidelines on customer identification procedures, including Know Your Customer (KYC) norms.
  • Security and Risk Management: NBFCs must establish robust security measures and risk management systems to protect the interests of PPI holders.
  • Reporting and Compliance: NBFCs are required to submit periodic reports to the RBI, providing information on the issuance, usage, and compliance-related aspects of PPIs.
  • Customer Grievance Redressal: NBFCs must have a proper grievance redressal mechanism in place to address any customer complaints or disputes related to PPIs
  • Regulatory Compliance: NBFCs must comply with all the applicable laws, regulations, and guidelines set by the RBI regarding the issuance and operations of PPIs.

4. What is the eligibility criteria for Prepaid Payment Instruments (PPIs)

The Reserve Bank of India (RBI) has laid down specific rules and regulations regarding the issuance of prepaid payment instruments (PPIs) by NBFC. These guidelines are necessary for ensuring smooth, secured, and hassle-free functioning of prepaid payment systems.

Here are the key regulations set forth by the RBI:

Eligibility for Non-Banking Entities: All Non-banking entities who wish to issue PPIs must meet specific criteria to be authorized for issuing PPIs. These criteria include:

  • Registration in India: The company must be registered within the territory of India.
  • Minimum Paid-up Capital: The company should have a minimum paid-up capital of more than Rs. 5 crore.
  • Net Worth Requirement: Non-banking entities must maintain a net worth of $1,000,000 or more.
  • Allowing Authorization for Banks: Banks are given the go-ahead by the RBI to provide prepaid payment instruments (PPIs) through any provider that meets their conditions. They have the flexibility to make this decision.
  • Only Closed or Semi-closed System: Non-banking entities and companies are limited to issuing Payment Protection Instruments in a closed or semi-closed system. Such a system ensures effective control of the process and helps provide an extra layer of security for users.
  • Security for Portable Electronics: For devices such as phones and tablets, RBI has extra measures in place to protect PPIs. This secures all transactions made using these instruments and helps to maintain their validity.
  • Maintaining Escrow Account: NBFC’s intending to implement Prepaid Payment Instruments (PPIs) must deposit a certain amount in an escrow account with any of the scheduled commercial banks in the country. This step further strengthens and boosts the trustworthiness of such payment systems.


In summary, India’s financial system has shown to rely on Prepaid Payment Instruments (PPIs) as a key component of its financial ecosystem. To ensure the security, accountability and efficient functioning of PPIs, the RBI has adopted strict guidelines.

Prepaid payment instruments play a key role in the growth of digital payments. These instruments provide an extra level of protection for portable electronics and also require escrow accounts, which further boosts their security and reliability. PPI transactions are safe, secure & efficient, making them increasingly popular across various sectors in India’s evolving financial landscape.

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