RBI puts a stop to credit lines on non-bank prepaid instruments

RBI puts a stop to credit lines on non-bank prepaid instruments

Subject: Economy

Section: Monetary Park 

Context: The Reserve Bank of India (RBI) has issued a notification disallowing non-bank prepaid wallets and prepaid cards from loading credit lines

What are prepaid payment instruments (PPIs)?

It is a payment instruments that facilitate the buying of goods and services, including the transfer of funds, financial services, and remittances, against the value stored within or on the instrument

PPIs are in the form of payment wallets, smart cards, mobile wallets, magnetic chips, vouchers, etc

As per the regulations, banks and NBFCs can issue PPIs

What is a credit line?

• A credit line is a preset borrowing limit that allows an individual or a business access to credit at any time, as per need.
• It can be tapped into by the customer till the limit offered is not exceeded.
• It is like a flexible loan as against a lump-sum loan where a fixed amount is borrowed
• Companies like Paytm, Amazon Pay, LazyPay, Simpl, etc offer postpaid wallets with small credit lines

Why has the RBI issued this notification?

• With credit products infiltrating the market, there is a renewed push by the regulator to clampdown in the interest of consumer safety.

Concept:

• Payment and Settlement Systems Act, 2007 (PSS Act)
• The Section 2(1) (i) of the PSS Act 2007 defines that a payment system enables payment to be affected between a payer and a beneficiary, involving clearing, payment or settlement service or all of them, but does not include a stock exchange
• It is further stated a ‘payment system’ includes the systems enabling credit card operations, debit card operations, smart card operations, money transfer operations or similar operations
• The PSS Act 2007 does not prohibit foreign entities from operating a payment system in India and the Act does not discriminate or differentiate between foreign entities and domestic entities
• All entities, whether domestic or foreign, need to obtain a licence approval or authorization from the RBI before commencing payment system operations in the country.