Blog: PIF Comments on RBI’s Revised Prepaid Guidelines
In 2012, the Reserve Bank of India made public its vision for payment systems in the country through 2015. The main focus of its vision document was to provide a thrust to modern electronic payment systems that would help increase the number of cashless payments and meet payment needs, such as remittances, under the overall ambit of financial inclusion.
Among its objectives was the creation of a regulatory framework conducive to introducing innovative new products and new players. The regulator already has opened up the payments space to nonbank issuers and liberalized the norms for issuing prepaid products in India. RBI’s revised guidelines consolidate various rules and regulatory policy that RBI has issued since 2009 into one framework and introduced some modifications.
Given the pace at which the payments landscape is evolving in India, RBI appears to have adopted a suitably pragmatic approach. It has expanded the definition of prepaid products and clarified many existing guidelines, such as who is permitted to issue prepaid products in India. As affected providers work through and digest the revisions, much attention is focused on some of the more salient parts of the guidelines, such as the cap on the maximum value of any prepaid product, which has been kept at Rs. 50,000 (US$829).
|“The industry advocates a relaxation in KYC requirements, when the card is provided by the employer, which already ‘knows’ the employee, and the employer only is permitted to load funds on the card.”|
A significant change, however, is that the new guidelines impose higher capital requirements for new market entrants (from Rs. 100 Lakh (US$168,653) to Rs. 500 Lakh (US$837,734) and a minimum positive net worth of Rs. 100 Lakh (US$168,653) at all times. Bank and nonbank entities that already are licensed to issue prepaid products in India will not be affected by this revision.
Industry players welcome the guidance to bring the legal framework for prepaid under a single policy document that leaves little room for ambiguity, and industry continues to advocate for further reforms that will help drive growth of prepaid products to benefit Indian citizens.
In addition, the industry believes existing rules could be further modified to provide consumers with an entry point to the financial services mainstream, such as treating prepaid at par with “no-frills” accounts. No frills accounts are basic bank accounts the RBI has urged banks to make available to facilitate financial inclusion. From an industry perspective, prepaid cards can meet the payment needs of the unbanked by offering a low-cost alternative to traditional banking services, particularly for the disbursement of government benefits and payments.
As the prepaid industry in many markets strives to assess the implications of new and emerging guidelines, the focus of nonprofit industry bodies, such as PIF, is to liaise with and educate regulators on the nuances of the ever-changing prepaid payments landscape as well as to make recommendations on how further reforms could help drive growth. RBI, like many other regulators, recognizes that stakeholder engagement is key for an industry that is striving to increase choice and access to financial services, while opening up markets in a controlled manner.
Amit Sethi, managing director, Asia, Middle East and Africa for TSYS International and co-chairman of PIF India, is a 25-year veteran of the global payments industry. During his career, he has been involved actively in the financial services, technology and outsourcing industries in the U.S. and India. He has held executive positions with companies including Bank of America, HSBC, Visa International, KPMG, Oracle Corporation and iGate. Amit was global sales head of financial services and service industries for Sutherland Global Services prior to joining TSYS, one of the world’s largest companies for licensed and outsourced payment services. He may be reached at firstname.lastname@example.org.