India’s Central Bank Tightens Prepaid Regs (March 31, 2014)
The Reserve Bank of India (RBI) has updated its rules covering prepaid products, which it says will help combat money laundering and fraud. But the new rules, including relatively low maximum balances for prepaid instruments and full KYC for gift cards, may hinder the industry’s growth. Among the new rules are, a maximum balance of 50,000 rupees (US$834) for a single prepaid instrument, tighter KYC requirements and a licensing rule mandating that any nonbanks receive approval from RBI before issuing any prepaid products. The rules also expand the definition of just what constitutes a prepaid product in the first place. The RBI’s expanded definition includes Internet payment tools, mobile wallets, paper vouchers and anything else that can be used to access prepaid funds.
The new rules were drafted as an update to India’s Payment Settlement Systems Act of 2007, marking the first revision to prepaid guidelines in the law since 2009. “The developments in the prepaid payment instrument segment have necessitated a comprehensive review of guidelines issued so far,” RBI said in a statement. Along with the load limit, the new laws require the name of the product’s issuer to be “prominently” visible on the payment instrument. The updated regulations also raise the capital requirements for prepaid issuer to 5 million rupees (US$83,300), from 1 million rupees (US$16,660). The RBI also enacted several new laws covering prepaid gift instruments specifically, including a one-year limit to the valid term of prepaid gift products, bans on cash withdrawals and reloads, and full KYC of the purchaser.
The RBI has been promoting the development of prepaid as a way to move India’s economy away from cash, which remains the dominant form of payment in the country. In July 2012, the bank released its Payment Systems Vision Document 2012-2015, which laid out a number of proposals to promote prepaid and electronic payments and fine-tune the laws covering those sectors.