MEAL vouchers and prepaid cards have come under the regulatory scanner. In an attempt to check possible moneylaundering, Reserve Bank of India (RBI) has proposed that only banks and finance companies be allowed to issue prepaid cards which are accepted outside a closed group. This means that issuers who are neither banks nor finance companies will have to restrict card issuance to a closed group.
The increasing acceptance of meal vouchers and prepaid cards has made them as good as currency, but they are yet to come under any knowyour-customer (KYC) norms. KYC norms are aimed at preventing unaccounted, or ‘black’, money in the system. The central bank had always been keen on blocking this unregulated patch in the payments arena. However, with the passage of the new Payment and Settlement Systems Act 2007, the central bank is in a position to issue guidelines.
In a recent approach paper, RBI has documented the proposed regulations. The central bank is expected to issue its guidelines soon. In the approach paper, RBI has described prepaid cards as payment cards which include smart cards, magnetic strip cards, internet accounts, internet wallets, internet purse, mobile accounts, mobile wallets, mobile purse and paper vouchers.
As of now, some prepaid card issuers book the proceeds of the sale as income. RBI now proposes that all non-banking entities issuing these cards maintain the proceeds in an escrow account with a bank.
The central bank has classified prepaid cards based on the levels of the user group and acceptance.
These are closed system, semi-closed system, semi-open system and open system cards.
Closed system cards are those issued by business establishments for use only at that establishment, or for availing of services from a service provider. These instruments are generally not reloadable and do not permit cash withdrawal. Examples of such instruments are gift vouchers issued by certain merchant establishments and telephone calling cards. “The mobile prepaid value may also be considered as a closed-system prepaid payment instrument, though they can be used for availing of additional value-added services,” the paper said SEMI-CLOSED are those prepaid cards which are redeemable at a group of establishments associated with a particular shopping mall, tourist resorts, or at establishments and service providers listed out by the issuer. These instruments are generally issued by third-party service providers. These instruments can be issued in reloadable, or non-reloadable formats, but do not permit cash withdrawal.
Semi-open system payment instruments are payment instruments which can be used for purchasing goods and services at any card-accepting merchant locations (point of sale terminals).
These instruments can be issued in reloadable or non-reloadable formats, but they do not permit cash withdrawal. Open system cards are those where cash withdrawal is allowed in addition to payments. These include payroll cards and travel cards issued by banks which are operated and settled through recognised card companies.
During a speech at an IBA function in August, RBI deputy governor V Leeladhar had said: “A number of innovative payment instruments/systems have been introduced by unregulated entities. While large payment systems, which are unregulated, present risks to the stability of the financial systems, unauthorised retail payment systems without proper management and operational structures can undermine public confidence in the efficacy of the payment systems as a whole.”