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RBI introduced New Payment Instrument

Published on December 26, 2019
Current context: RBI has introduced a new Prepaid Payment Instrument (PPI) to make daily payments for the purchase of daily household goods and services on 24th Dec 19.
RBI introduced New Payment Instrument 
  • The instrument has been introduced to give increased impetus to small ticket digital payments to merchants, local shops and retail outlets.
  • The new semi-closed Prepaid Payment Instrument (PPI) can be used only for making retail payments and will come with a monthly rechargeable limit of Rs 10,000.
  • The Rs 10,000 amount can only be uploaded only from a bank account linked with the customer's verified mobile number.
  • An annual limit of Rs 1.2 lakh has also been fixed by the RBI, that can be recharged on these accounts.
  • The banks and existing non-bank PPI players can issue the new payment instrument and would verify the credentials of customers.
  • The verification process involves the use of an OTP sent to the user's verified mobile number and a digital identification document recognized by the Department of Revenue.
  • The documents required for the verification are:
    1. A mobile number verified with One Time Pin (OTP)
    2. A self-declaration of name
    3. Unique identity/ identification number of any ‘mandatory document’ or ‘officially valid document’ (OVD) listed in the RBI’s ‘Master Direction - Know Your Customer (KYC) Direction’

Prepaid Payment Instrument (PPI):

  • PPIs are instruments that facilitate the purchase of goods and services, including financial services, remittance facilities, etc., against the value stored on such instruments.
  • At present, RBI allows only three kinds of PPIs including closed system, semi-closed and open PPIs.
  • Closed System PPIs: These 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 a payment system requiring approval/authorisation by the RBI.
  • Semi-closed System PPIs: These PPIs are issued by banks (approved by RBI) and non-banks (authorized by RBI) for 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: These PPIs are issued only by banks (approved by RBI) and are used at any merchant for purchase of goods and services, including financial services, remittance facilities, etc. Cash withdrawal at ATMs / Points of Sale (PoS) terminals / Business Correspondents (BCs) are also allowed through such PPIs.


Q.1 The newly introduced Prepaid Payment Instrument (PPI) of RBI is a _________ PPI? 
a. Closed system PPI
b. Semi-closed PPI
c. Open PPIs
d. None of them
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