The financial year 2017-18 is all set to bring in an array of reforms in the Indian economy, all aimed to achieve one thing: turn India into a 21st century super economy, where business would be able to run without hurdles involving regulatory, technology and work force.
As India enters the transformation stage into a super economy, new challenges have started to surface for the regulators. Keeping the economy on track to achieve national goals is of primary concern in this crucial stage. One of the many challenges is the concern regarding the new age payments solutions, which emerged as the brainchild of some revolutionary young minds, who aim to cater to the needs of the situation and, in turn, come out as successful entrepreneurs. The idea of alternative payment has been accepted widely throughout the country. More and more people are now moving on to these alternative payment solutions. As traffic increases on the servers of these new generation entrepreneurs, risk is also increasing. The government needs to take adequate steps to ensure these new entities are being able to manage transactions with zero down time and real time settlement, to ensure integrity of the Indian economy as a whole.
To keep a check on the activity of the alternative payment solution providers, the Reserve Bank of India (RBI) recently rolled out the
Master Directions on Issuance and Operation of Prepaid Payment Instruments in India. These directions are the consolidation of all the previous regulations issued by the RBI for the prepaid payment instrument (PPI) issuers and also proposes some changes in the regulation, which is currently in its draft stage and open for comment from stakeholders. In this article, we have tried to highlight the proposed changes and analyse its effect on the industry.
After the publication of the directions, the requirement of minimum paid up capital of Rs5 crore and positive net worth of Rs1 crore has been removed. Moving forward, new entities desirous of entering the business of issuance of PPI need to have a minimum positive net worth of Rs25 crore [net worth = Paid-up Capital + Compulsory Convertible Preference Shares + Free Reserves + Share Premium Account + Capital Reserve, excluding revaluation reserve – (accumulated loss + book value of intangible assets + deferred revenue expenditure)].
With this increased capital requirement, the RBI has ensured entry of only entities with deep-pockets in the business of issuance of PPIs. This was required to ensure the players are capable of deploying proper and secure technology to ensure integrity of the PPI system and minimise the chances of data theft or unauthorised access to public held by the PPI issuers. All entities are required to comply with the capital requirements at all times. Apart from this, the entities are required to submit certificate of compliance with the RBI annually by September end every year.
Entities already into the business of PPI are allowed time up to 31 December 2020 to comply with the new capital requirements. Failing to achieve the capital requirement by the time allowed will result in cancellation of the PPI license by the RBI. We can see that the RBI is considerate of the existing entities by providing them with time of four years to increase their capital.
The RBI has now permitted deposit of cash by users to reload their PPI balance. From this, it is evident that the RBI is desirous of promoting PPI usage by the public, while also allowing entry into the industry of those with large resources.
Most categories of PPI in India are semi-closed. Prior to publication of the instant directions there could be three types of PPI:
1. Value up to Rs20,000 with minimum customer details
2. Rs20,001 up to Rs50,000 with officially valid documents
3. Rs50,001 up to Rs1 lakh with full know-your-customer (KYC) documents.
For now, the second category of semi-closed PPI has been abolished; therefore, only fully KYC compliant accounts can have a balance of more than Rs20,000. Apart from this, the PPIs of value less than Rs20,000 shall also be converted into full KYC PPI within 60 days of issuance. Hence, the regulators are now cautious of the usage of the PPIs and aim to keep a close watch on them.
Other Changes:
1. Maximum value of prepaid gift cards has been brought down to Rs20,000 from Rs50,000 whereas all other directions regarding gift cards are unchanged.
2. Prepaid meal vouchers are to be issued only in electronic form; hence the Sodexo voucher now needs to have a digital facelift
3. Maximum value of PPI for mass transit system has been raised to Rs3,000 from Rs2,000
4. PPI issued to non-resident Indians (NRI) visiting the country has been discontinued altogether with immediate effect from the date of publication of these Master Directions.
5. PPI issuers facilitating payment on e-commerce website shall now obtain an undertaking from individual merchants registered on the e-commerce website (who are actually accepting payments through the PPIs of the issuers).
6. The banks maintaining the escrow account of the PPI issuers shall obtain the list of individual merchants accepting payment through the PPI, which must be submitted to RBI by the bank.
There have been many changes provided for in the directions, some of which hit PPI issuers, whereas some others would enable businesses to runs more smoothly. While a lot is being done by the regulators to minimise risk and facilitate smooth functioning of the business, for the exact outcome of the directions we need to wait for the reaction of the entities already into business.
(Ameet Roy works as Executive in the Financial Services Division at Vinod Kothari Consultants Pvt Ltd)
