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Draft Guidelines for issuance and operation of Prepaid Payment Instruments in India

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Draft Guidelines for issuance and operation of Prepaid Payment Instruments in India
A. PurposeTo provide a framework for the regulation and supervision of all the entities involved in issuance of Prepaid Payment Instruments in the country and to ensure orderly development of this segment of the payments and settlement system in a prudent and customer friendly manner.
B. Scope
These guidelines lay down the eligibility criteria and the basic conditions for issuance of prepaid payment instruments in the country. All entities seeking to issue prepaid payment instruments in India shall comply with these guidelines.
All non-bank entities proposing to issue such instruments, unless otherwise specifically exempted as per the guidelines, shall seek authorization from the Reserve Bank of India, under the Payment and Settlement System Act 2007.
Banks and Registered Non-Bank Financial Companies seeking to issue such instruments shall seek approval from the Department of Payment and Settlement Systems, Reserve Bank of India.
All entities currently issuing such instruments shall comply with the guidelines within three months from the date of issuance of these guidelines.
C. Structure
1. Introduction
2. Definitions
3. Eligibility
4. Exemption
5. Capital requirements
6. Safeguards against money laundering KYC/AML/CFT provisions
7. Deployment of Money collected
8. Issuance and reloading of prepaid payment instruments
9. Validity
10. Redemption
11. Fraud prevention and Security standards
12. Customer Protection Issue
1. Introduction
1.1 Banks and non-bank entities have been issuing prepaid payment instruments in the country. Hitherto only banks proposing to issue prepaid payment instruments were approaching Reserve Bank for authorization. Consequent to the passing of Payment and Settlement systems, Act 2007, all non-bank entities currently issuing prepaid payment instruments and those proposing to issue such payment instruments would have to approach Reserve Bank for authorization. In the emerging scenario, it is imperative to have a set of guidelines for prepaid payment instruments that would cover both banks and non-bank entities, to ensure orderly development and operations of prepaid instruments in the country. Reserve Bank of India has therefore has brought out these set of operating guidelines. These guidelines lay down the eligibility criteria and the basic conditions for issuance of prepaid payment instruments in the country.
2. Definitions
2.1 Issuer: Entities issuing prepaid payment instrument to individuals/organizations. The money collected is retained by these entities and they make payment to the merchants who are part of the acceptance arrangement directly or through a settlement arrangement.
2.2 Holder: Individuals/Organizations who acquire prepaid payment instruments for purchase of goods and services.
2.3 Prepaid Payment Instruments: Prepaid payment instruments are payment instruments that facilitate purchase of goods and services against the value stored on such instruments. The value stored on such instruments represents the value paid for by the holder, by cash, by debit to a bank account, or by credit card. The Prepaid instruments can be issued as smart cards, magnetic stripe cards, internet accounts, internet wallets, mobile accounts, mobile wallets, paper vouchers and any such instruments which can be used to access the prepaid amount (collectively called Payment Instruments hereafter).
The prepaid payment instruments that can be issued in the country are classified under the four categories viz. (i) Closed system payment instruments (ii) Semi-Closed system payment instruments (iii) Semi-Open system payment instruments and (iv) Open system payment instruments.
2.4 Closed System Payment Instruments: These are payment instruments generally issued by business establishments for use at their respective establishment only. These instruments do not permit cash withdrawal or redemption.
2.5 Semi-Closed System Payment Instruments: These are payment instruments which are redeemable at a group of clearly identified merchant
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