Features of different types of virtual cards/prepaid instruments

Edited and re-posted on 19.05.2021:

Prepaid cards also known as virtual cards. They are issued by the banks and non-bank entities against the value paid in advance by the cardholder. As per RBI’s circular dated May 19, 2021, it shall be mandatory for PPI issuers to give the holders of full-KYC PPIs (KYC-compliant PPIs) interoperability through authorised card networks (for PPIs in the form of cards) and UPI (for PPIs in the form of electronic wallets) which shall be enabled by March 31, 2022. Further, it is clarified that ‘Interoperability’ shall be mandatory on the acceptance side as well. However, PPIs for Mass Transit Systems (PPI-MTS) shall remain exempted from interoperability while Gift PPI issuers have the option to offer interoperability, said RBI. The feature of cash withdrawal is permitted in respect of full-KYC PPIs issued by both banks and non-banks. The conditions for cash withdrawal are as under.

Withdrawal of Cash through PPI:

The maximum limit of cash withdrawal is Rs2000 per transaction with an overall limit of Rs10000 (Ten Thousand) per month per PPI.  All cash withdrawal transactions performed using a card/wallet shall be authenticated by an Additional Factor of Authentication (AFA) / PIN. PPI issuers shall put in place a suitable cooling period for cash withdrawal upon opening the PPIs or loading / re-loading of funds into PPIs to mitigate the risk of fraudulent use of PPIs. The cash withdrawal limit from Points of Sale (PoS) terminals using debit cards and open system prepaid cards issued by banks in India advised by RBI vide circular DPSS.CO.PD.No.449/02.14.003/2015-16 dated August 27, 2015, has also been rationalised to Rs2,000 per transaction within an overall monthly limit of Rs10,000 across all locations (Tier 1 to 6 centres).

Prepaid cards also known as virtual cards. They are issued by the banks and non-bank entities against the value paid in advance by the cardholder. PPIs that can be issued in the country are classified under three types viz. (i) Closed System PPIs, (ii) Semi-closed System PPIs, and (iii) Open System PPIs.The Reserve Bank of India (RBI) has recently allowed interoperability of Prepaid Payment Instruments (PPIs) and increased the account limit to Rs 2 lakh for digital wallets. RBI also made interoperability mandatory for full KYC PPI.

Closed System PPIs are issued by an entity for facilitating the purchase of goods and services from that entity only and do not permit cash withdrawal. As these instruments cannot be used for payments or settlement for third-party services, the issuance and operation of such instruments are not classified as payment systems requiring approval/authorisation by the RBI.

Semi-closed System PPIs can be used for the purchase of goods and services, including financial services, remittance facilities, etc., at a group of clearly identified merchant locations/establishments which have a specific contract with the issuer (or contract through a payment aggregator/payment gateway) to accept the PPIs as payment instruments. These instruments do not permit cash withdrawal, irrespective of whether they are issued by banks or non-banks.
Open System PPIs are issued only by banks and are used at any merchant for the purchase of goods and services, including financial services, remittance facilities, etc. Banks issuing such PPIs shall also facilitate cash withdrawal at ATMs / Point of Sale (PoS) / Business Correspondents (BCs).

These virtual cards come with security features such as the Web and card PIN. The validity period of the prepaid cards varies from six months to one year depending upon the card-issuing bank and the purpose of the card. The cardholder will have to redeem any unused balance within this time period. The prepaid cards can be issued in the form of gift cards. The maximum validity of the gift cards has been enhanced from one year to three years. Other provisions of PPI guidelines with respect to Gift Cards will continue to be applicable.

The prepaid instruments (PPI) are issued in the form of smart cards or chip cards, magnetic stripe cards, internet accounts, internet wallets, mobile accounts, mobile wallets, paper vouchers, etc. The prepaid cards issued by banks can be used to withdraw cash from an ATM, for the payment of the purchase of goods and services at online purchases and at merchant establishments like Malls, Shops, Hospitals, Petrol bunks, and other service providers. Prepaid cards can also be used for payment of utility bills and transfer funds to bank accounts, debit cards, credit cards within the country. Cards issued by non-bank entities: Prepaid cards are also issued by non-bank entities authorized by RBI like Airtel Money, ITZ cash e-wallet, Oxygen, Y Pay cash. But Cash withdrawals from such cards are not allowed. Prepaid cards issued by non-bank entities can be used only for the purchase of goods and services at Point of Sale (POS) or E-commerce (online purchase).

To further facilitate prepaid instrument usage, the Central Bank proposes to introduce a new type of PPI that can be used only for the purchase of goods and services up to a limit of ₹10,000. The loading/reloading of such PPI will be only from a bank account and used for making only digital payments such as bill payments, merchant payments, etc.

Formalities for issuing prepaid cards:

These can be issued only in electronic form. The prepaid card for Rs.10,001/- to Rs.50,000/- is issued by accepting any ‘officially valid document’ defined under Rule 2(d) of the PML Rules 2005, as amended from time to time. Such PPIs can be issued only in electronic form. Only on full compliance of KYC prepaid cards can be reloadable up to Rs.50,000/-. However, the balance in the prepaid instrument should not exceed Rs.50,000/- at any point in time. Prepaid cards can be used only domestically.
The visiting NRIs and foreign nationals to India can be issued the open system rupee denominated non-reloadable ‘Pre-Paid Instruments’ in electronic form. The cards can be issued by overseas branches of banks in India directly or by co-branding with the exchange houses/money transmitters up to a maximum amount of Rs.2 lakhs by loading from a KYC-compliant bank account. Such PPIs should be activated by the bank only after the traveler arrives in India. Cash withdrawal from such PPIs will be restricted to Rs 50,000/- per month. The cards should be issued strictly for use in India and transactions settled in INR. An individual can hold only one card at a time and the card should be non- transferable. These PPIs may be used only for transactions permissible under the extant foreign exchange regulations.

RBI on August 30, 2019, vide. its amendment to Master Direction on Issuance and Operation of Prepaid Payment Instruments (PPIs) advised that the timeline for the conversion of minimum detail PPIs to KYC compliant PPIs has been extended from 18 months to 24 months. In view of the recent developments on e-KYC and digital-KYC, the Banking regulator advised PPI issuers to ensure compliance with the Direction within this extended period.