Safe ePayments: school fees

As the concept of Prepaid Payment Instruments are becoming popular in our country, RBI to further encourage Safe ePayments has considered it necessary to announce two amendments.

The following are two amendments announced on 12/06/2012

The limit of Rs 1000/- for semi-closed prepaid payment Instrument that can be issued under Para 6.4 (i) of guidelines dated April 27, 2009 has been raised to Rs 2000/-.

The instruments can be issued against any identity document furnished by the customer as long as the issuer reports the annual transfer/suspicious transactions. Further, RBI has also specified that only one active instrument should be issued by the issuer to the same holder I.e multiple instruments should not be issued.

Another important amendment is on the belief that the full KYC of the customer has been done by the provider of such services.

The issue of semi-closed prepaid payment instrument upto Rs 10,000 without separate KYC being conducted by the issuer, for payment of utility bills/ essential services/ air and train travel under Para 6.4 (iii) was permitted on the premise that full KYC of the customer is already being done by the provider of such services. The control exercised by the issuer has been on the acceptance side, ie. utility of the card for the specific purpose at the specific merchant. Based on this rationale, it has been decided to redefine the merchant categories under Para 6.4 (iii).

The Merchant categories now included under Para 6.4(iii) are :-

a) Utility providers/Essential service providers viz electricity bills, water bills, telephone/mobile phone bills, insurance premium, cooking gas payments, rental for Internet/Broadband Connections, Cable/DTH subscriptions and Citizen Services by Government or Government bodies. .

b) Air and Train travel tickets

c) recurring payment of college fees

d) recurring payment of school fees

e) government taxes upto a limit of Rs10,000/-

The concept of Prepaid instruments in India was first thought of in the paragraph 151 of ‘Annual Policy Statement for 2009 – 2010’

Semi-closed system payment instruments are redeemable at a group of clearly identified merchant locations or establishments which contract specifically with the issuer to accept the payment instrument. No cash withdrawals are permitted under the semi-closed payments instrument options.

A Payment Instrument in brief can said to be instruments which permit transactions for value between a payer and beneficiary by which the payer discharges the payment obligation of the beneficiary. The payment mode can be pre-paid, post-paid(eg mobile connections) or immediate discharge.

A simple defintion of Pre-Paid Instrument is any payment instrument which permit transactions for value stored in them. The most popular prepaid instruments in India are the prepaid mobile vouchers. As the prepaid mobile vouches gained popularity, the concept was extended to other services.

Prepaid instruments aim to reduce the usage of cash and also enable ePayments through internet/mobile shopping.

Popular types of Prepaid payment instruments.

1) 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. The best example could be canteen tokens issued by business establishments.

2. Open System Payment Instruments: These are payment instruments which can be used

for purchase of goods and services and also permit cash withdrawal at ATMs; The best example is the Bank Debit Card.

3. Semi‐closed System Payment Instruments: These are payment instruments which are

redeemable at a group of clearly identified merchant locations/ establishments which contract specifically with the issuer to accept the payment instrument. These instruments do not permit cash withdrawal or redemption by the holder; The best example are the mobile recharge vouchers.

4. Semi‐open System Payment Instruments: These are payment instruments which can be

used for purchase of goods and services at any card accepting merchant locations (Point

of sale terminals). These instruments do not permit cash withdrawal or redemption by

the holder.

Normally, cross border transactions are not permissible on these instruments. However, only entities which have permissions under FEMA can issue cross border transaction enabled prepaid instruments.

In India, of the above 4, RBI has permitted the issuance of the following three types of instruments:

(i) Closed system payment instruments Examples of such instruments are gift vouchers issued by certain merchant establishments and telephone calling cards. Mobile prepaid value may also be considered as a closed‐system prepaid payment instrument, though they can be used for availing of additional value‐added services.

(ii) Semi‐closed system payment instruments. E.g. prepaid cards which are redeemable at a group of establishments associated with a particular shopping mall, tourist resorts, or at establishments and service providers listed out by the issuer; and

(iii) Open system payment instruments ‐ only banks are permitted to issue this type of

instruments.