Operational Guidelines for Interoperability of PPIs

Prepaid Payment Instruments (PPIs)

PPIs are payment instruments that facilitate purchase of goods and services, including financial services, remittance facilities, etc., against the value stored on such instruments. 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.

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 is not classified as payment systems requiring approval / authorisation by the RBI.

Semi-closed System PPIs:

These PPIs are used 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 and are used at any merchant for 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).

Eligibility to issue semi-closed and open system PPIs

Banks which comply with the eligibility criteria, including those stipulated by the respective regulatory department of RBI, shall be permitted to issue semi-closed and open system PPIs, after obtaining approval from RBI.

Non-bank entities which comply with the eligibility criteria, including those stipulated by the respective regulatory department of RBI, shall be permitted to issue only semi-closed system PPIs, after obtaining authorization from RBI.

Interoperability

Interoperability is the technical compatibility that enables a payment system to be used in conjunction with other payment systems. Interoperability allows PPI Issuers, System Providers and System Participants in different systems to undertake, clear and settle payment transactions across systems without participating in multiple systems.

Requirements for achieving interoperability: Common to Wallets and Cards

1. Where PPIs are issued in the form of wallets, interoperability across PPIs shall be enabled through UPI.
Where PPIs are issued in the form of cards, the cards shall be affiliated to the authorised card networks.
2. All PPI issuers intending to implement interoperability through UPI and / or card networks shall adhere to the instructions contained in these guidelines. PPI issuers operating exclusively in specific segments like Meal, Gift and MTS may also implement interoperability.
3. The interoperability shall be facilitated to all KYC compliant PPI accounts and entire acceptance infrastructure.
4. Technical requirements: PPI issuers shall adhere to all the requirements of card networks / UPI including membership type and criteria, merchant on-boarding, adherence to various standards, rules and regulations applicable to the specific payment system such as technical requirements, certifications and audit requirements, governance, etc.
5. Reconciliation, customer protection and grievance redressal:
• PPI issuers shall ensure adherence to all guidelines / requirements of card networks / UPI in terms of reconciliation of positions at daily / weekly / monthly or more frequent basis, as the case may be.
• PPI issuers shall adhere to all dispute resolution and customer grievance redressal mechanisms as prescribed by the card networks / UPI.

Requirements for achieving interoperability through card networks

1. Card networks are allowed to onboard PPI issuers to join their network. Non-bank PPI issuers are permitted to participate as members / associate members of authorised card networks.
2. Settlement: For the purpose of settlement, a non-bank PPI issuer can participate directly or through a sponsor bank arrangement as the case may be. Non-bank PPI issuers shall adhere to the requirements of respective card network’s settlement system.
3. Safety and security:
• As non-bank PPI issuers will issue interoperable cards in association with card networks for the first time, the cards issued by these entities shall ab initio be EMV Chip and PIN compliant.
• Banks shall ensure that all new PPIs issued in the form of cards are EMV Chip and PIN compliant.
• Banks shall ensure that all reissuance / renewal of PPIs in the form of cards are EMV Chip and PIN compliant.
• PPI issuers operating exclusively in Meal segment shall issue EMV Chip and PIN compliant cards, if they opt for interoperability. Gift cards and MTS, may however, be issued with or without EMV Chip and PIN enablement.

Requirements for achieving interoperability through UPI

1. PPI issuers shall facilitate all basic / standard features of interoperability of UPI.
2. PPI issuers shall act as Payment System Providers (PSP) in the UPI. NPCI will issue handle to the PPI issuers as per its policy / guidelines taking risk management aspects into consideration. Since *99# USSD is part of UPI, non-bank PPI issuers are also allowed to participate in the same.
3. PPI holders shall be on-boarded for UPI by their own PPI issuer only. PPI issuers shall only link their customer wallets to the handle issued to them. PPI issuers as PSP shall not on-board customers of any bank or any other PPI issuer.
4. Authentication will be completed by the PPI holder as per his / her existing wallet credentials. In other words, a transaction will be pre-approved before it reaches the UPI.
5. Settlement: For the purposes of settlement, a non-bank PPI issuer shall participate through a sponsor bank. Non-bank PPI issuers shall adhere to the requirements of sponsor bank arrangement in UPI as also meet all requirements of NPCI in this regard.

Source : RBI

Related references

1. Master Direction on Issuance and Operation of Prepaid Payment Instruments