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How Prepaid Payment Instruments can Change The Face of India’s Payment Industry
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Wouldn’t it be extremely convenient if you do not have to wait to get credit at the retail store, or if you could get EMI without a credit card? It is possible if you use prepaid payment instruments. Prepaid payment instruments (PPI) 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. With increasing regulations and operational complexities, some prepaid payment instruments have fallen out of favour. On the other hand, other forms of innovative payment systems have reached a commanding position due to ease of use and acceptability. Bajaj Finserv EMI Card, available on Bajaj Markets can be used to buy over a million products through over 84,200 retail partners, including but not limited to the best LG or Samsung TVs, the latest Redmi smartphones, the top iPhone models and the trendiest Dell laptops, on the Bajaj Finserv EMI Store. Customers can also use a variety of payment mediums on the Bajaj Markets mobile App.
The Reserve Bank of India is the Indian authority (regulator) for these payment instruments which are licensed and regulated by RBI. As per the guidelines of the RBI, prepaid payment instruments can be classified into three categories.
- Open system PPIs.
- Closed system PPIs
- Semi-closed system PPIs
For example, a brand-specific gift card is issued under the category of, “Closed PPI” which is the most common example of PPI. Also, cards, physical or otherwise, can be used only at specific locations, and cannot be used to transfer funds from one account to another.
Among, semi-closed PPIs, e-wallets like Oxigen and Mobikwik are a common example. These are not restricted to a single entity and can be used for the purchase of any kind of goods and services as well as to transfer money to someone.
Banks in India are authorized to issue open system PPIs and can be used at any merchant outlet for any purchase or even cash withdrawal. For example, travel card is a type of open system PPI. It can be used for all types of spending and for cash withdrawal from ATMs.
Restricting non-banks to apply for Open PPIs is a missed opportunity
Now that the Master Directions enable full-KYC PPIs, there is a case for enabling non-bank payment service providers to issue open-loop PPIs (enabling cash-out transactions) and enabling parity in other respects like cross-border outward transactions, subject to the full-KYC mandate. This regulatory change can induce competition in the cards market.
On their part, prepaid payment instruments should focus on innovations such as providing credit cards secured against the balance in PPIs. It can also help build a credit history for first-time users and can even act as surrogates for more mature credit products. But the regulatory authority has shied away from taking bold reforms. PPIs could also consider the use of technology to ascertain the creditworthiness of the customer to offer tailor-made solutions. The Bajaj Finserv EMI Card functions on a similar base. It comes loaded with a pre-approved loan, which can be used to buy the best iPhone models, the latest Samsung smartphones or the newest Vivo gadgets, besides a whole host of other electronics and appliances. In fact, the Bajaj Finserv EMI Store boasts of an impressive array of products from other leading brands like Sony, Panasonic, Dell, and Oppo, among several others. The process of receiving the Bajaj Finserv EMI Card, available on Bajaj Markets, is simple and hassle-free.
If PPIs focus on innovation and the regulatory authorities allow NBFCs to issue open loop PPIs, it could strongly benefit consumers, allowing them to seamlessly transfer money between different instruments, rather than remaining locked with a particular provider. This helps in expanding the digitization of small-value person-to-merchant transactions such as taxi rides and grocery purchases. However, we also need to carefully consider the long-term implications of the move. Prepaid payment instruments enable digital transactions within a secured environment and merchant ecosystem.
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