A Quick Guide to PPI Interoperability

Over the past few years, the fintech revolution has rationalized human financial decisions. Digital transactions have risen at a remarkable rate nowadays. The (Prepaid Payment Instrument) PPI interoperability, UPI, IMPS, etc., have played an evident role in digital transactions growth.

Digital payments are widely hyped because of the seamless experience it offers. The imperial thing one requires is a SMARTPHONE with enough data and amounts in bank accounts to process digital payments. One can quickly make payments and bookings at any time and anywhere with PPI interoperability.

The successive Indian Governments have taken coordinated efforts to ensure this digital inclusion like PPI interoperability. In this frantic world, this advancement rightly fits and embeds into one’s routines.

PPI is an enviable method that helps us to purchase any product and service with cash stored in/ on the instrument. Through PPI interoperability, one can also obtain services from banks such as Money Transfers, exports, and other vital services. Some examples of PPI interoperability are payment wallets, smart cards, mobile wallets, vouchers, etc.

In this blog, we’ll discuss PPI interoperability. Before delving into this, we’ll focus on terms like PPIs, interoperability, etc.

RBI introduced PPIs under Development and Regulatory Policies in the year 2019. The limit of PPI is set up to ₹10,000. PPIs play an important role in enhancing digital payment as per RBI.

There are four types of PPI interoperability in India as per the guidelines of RBI:

It is a system in which the PPI is only valid to purchase from the body that issued it. For example, if you have a gift coupon from Myntra, you can’t use it on Flipkart.

The PPI interoperability will be null and void if a person tries to purchase things from another service provider. You can’t withdraw cash against the PPI balance under this strategy.

Since this method is not distinguished as a payment mechanism, the RBI does not require preceding authorization to issue PPI. Some closed-system PPI interoperability includes gift cards, vouchers, and smart cards.

Semi-closed systems are helpful only in some circumstances. Whether the cash is issued by banks or non-banks institutions, you can’t withdraw it.

You can use PPI interoperability at physical locations. But these locations should have a particular contract with the issuer. Semi-closed PPI interoperability accepts payment instruments.

Central Bank and non-banks approved PPIs such as HDFC bank’s PayZapp. RBI has authorized PPIs like ‘Paytm’ for financial transactions. You can also purchase financial services, pay money, remittance facilities, etc., in this system.

It buys things from those businessmen who accept credit cards (point sale terminals). The instrument holders can’t withdraw cash. They can’t redeem them.

Open System helps in money withdrawals, purchases, and remittances among various things.

Companies (Non-banking entities) have to fulfill some requirements in order to issue PPIs. The firm must be incorporated in India. The company’s minimum paid-up capital must be above ₹5 crores. At all times, the positive network must be INR 1 crore (minimum).

Those banks that comply as per the RBI’s eligibility criteria can issue PPIs. But only those banks who are approved by RBI can launch mobile-based PPI interoperability services.

Any organization that is into non-banking financial entities and intuitions can issue closed as well as semi-closed systems. It includes PPIs that are purely mobile-based. The only prerequisite set for non-banking entities to issue PPI is that they have to maintain an escrow account in a scheduled commercial bank of the country.

Banks with the approval of RBI can issue Open as well as semi-closed system PPIs. It includes those banks that the regulatory department of RBI stipulates.

Banks that fit the eligibility criteria and have approval from RBI can issue open-system as well as semi-closed-system PPIs.

Interoperability is a stage when one payment system can be used in association with another payment system.

It allows one to perform, clear, and settle transactions of payment across the system. You don’t have to participate in multiple systems for this.

Those who lie under the PPIs Interoperability category:

• PPI Issuers
• System Participants
• System Providers

In the case where PPI is issued in the form of a wallet then PPI interoperability must be enabled via UPI.

If PPI is issued in card form then the cards must be affiliated with card networks that are authorized. All the issuers of PPI who are planning to implement PPI interoperability via card networks or UPI must adhere to the guidelines. PPI issuers who operate in specific segments exclusively such as the Food industry, MTS, and Gift can also implement PPI interoperability.

The PPI interoperability shall facilitate the entire acceptance infrastructure and shall facilitate PPI accounts with KYC compliance.

PPI issuers need to adhere to all card network and UPI interoperability requirements. It includes membership criteria and types & merchant onboarding. This should be in adherence to various regulations, rules, and standards and applicable to specific systems of payment. This includes technical requirements, audit requirements, certifications, governance, etc.

PPI issuers must adhere to all requirements/ guidelines of PPI interoperability or card networks. This would be as per position reconciliation on a frequent basis or a Monthly/ Weekly/ Daily basis as per the requirement of the case.

PPI issuers need to adhere to customer grievance and dispute resolution mechanisms as shared by UPI/ networks.

Before proceeding further let us understand the term “Card Networks”. They are the technical backbone of payment systems and cards. They approve and review the applications for credit cards. Also, they are authorized to issue physical cards and set the limit on cards. They are sanctioned to set the guidelines or Terms & Conditions for each individual credit card. Some of the leading Card Networks are American Express, Master card, etc.

The card networks can onboard PPI issuers in their network. PPI issuers with a non-banking background are also given permission to participate as Associate Members/ Members of authorized card networks.

For any type of settlement purposes, a non-bank PPI issuer can participate via a sponsor bank or directly. But they should adhere to the respective card network’s settlement system and requirements.

• A PPI issuer with a non-banking background is authorized to issue interoperable cards for the initial time in association with card networks. The card issued will ab initio be a PIN and EMV Chip compliant.
• Banks will ensure that all the cards are PIN and EMV Chip compliant.
• Banks will ensure that all the renewal/ re-issuance of cards are PIN and EMV Chip compliant.
• PPI issuers exclusively working under the Meal segment shall issue PIN and EMV Chip compliant. This is in the case of they go for interoperability. MTS and Gift cards can be issued without/ with PIN and EMV Chip enablement.

PPI issuers will facilitate all standards/ basic features of UPI interoperability.

PPI issuers act as PSPs- Payment System Providers in the UPI. National Payments Corporation of India is authorized for handling PPI issuers as per its guidelines/ policy. The aspects of risk management are considered.

*99# USSD is the part of Prepaid Payment Instrument. Therefore, non-banker PPI issuers will be endorsed to engage.

The holders of PPI can be on-on boarded by their own PPI issuer. PPI issuers need to link the customer’s wallets for handling issues allotted to them. PSPs as PPI issuers need to ensure that they do not onboard clients of any other PPI issuer/ bank.

PPI holders will only complete the authentication as per their current wallet credentials.

Non-bank PPI issuers must adhere to the arrangement and requirements of the sponsor bank in UPI. They shall also meet the guidelines of NPCI.