Payments

Making payments has come a long way from the days of barter. We lived through the age of paper currency and now steadily moving towards a cashless economy. This economy thrives on digital payments through a Prepaid Payment Instrument. PPI plays a significant role in creating a cashless economy. India, in particular, gained great attention for crossing 25 million real-time transactions through PPI. Hence, many see the impact of PPIs in banking and fintech as undeniable. These instruments are mostly pre-loaded cars. Examples of PPIs in India include platforms like Paytm, GPay, gift cards, credit and debit cards. Today’s article takes a look at the types of PPI found in the industry. It also helps you in choosing the right prepaid payment instrument for your business needs. Why be part of the PPI hype train? PPIs are more than just a way to make payments. They are a revolutionary concept that benefits consumers and businesses. There is immense potential for companies to drive sales, increase revenue, and enhance the customer experience through PPI. PPIs officially launched in 2002 and the market grew quickly in the following years. The digital India strategy and demonetization only accelerated its growth. These measures resulted in greater mobile wallet usage, more digital payments, and widespread adoption of UPI transactions. Additionally, the Pandemic accelerated PPI usage. Many people prefer cashless and contactless payments over traditional payment methods. A prepaid payment instrument helps consumers pay for products and services in just a few steps. Now, they don’t have to carry physical cash or sign receipts at PoS terminals. PPIs created a landscape where making payments was quick and convenient. They also came with zero liability features and notable fraud monitoring measures to protect the users. The reasons stated above and more were why PPI transactions in India rose quickly. Statista reports that in 2020 alone, there were more than five billion PPI payments made in India. Years later, PPIs are now becoming the preferred payment method in the subcontinent. Hence, businesses are better off joining the bandwagon or risk getting left in the dust. Benefits of using a prepaid payment instrument for business PPIs can increase sales, profitability, and customer loyalty. Businesses can earn commissions on every transaction made through mobile wallet-enabled prepaid cards. Today, businesses must leverage PPIs to access the massive number of smartphone users back in India. A business that successfully implements PPI can enable numerous features for its users. The PPI reforms issued by the RBI made it clear that everyone must ride the prepaid payment instrument wave and enjoy the rewards. Listed below are the measures announced by the RBI in 2021. These measures came into force on 31st March 2022. ·         PPIS can offer real-time gross settlement and national electronic funds transfer facilities to their users. ·         Interoperability of full KYC (Know Your Customer) PPIs is mandatory. ·         The maximum balance of mobile wallets went from 1 lakh to 2 lakhs. ·         Cash withdrawals enabled for full-KYC PPIs of non-bank PPI issuers. The reforms listed above can level the playing field between banks and non-banks. It can also increase the number of full KYC PPIs and drive greater financial inclusion. Businesses that take payments or remittances through PPI experience many benefits. These benefits include greater customer acquisition, loyalty and retention, long-term profitability, and greater customer lifetime value. Choosing the right prepaid payment instrument for your business Let’s take a look at the fundamentals of PPI before we delve deeper into the subject. Prepaid Payment Instruments PPIs are made-up virtual cards and digital wallets that make it easy to purchase products and more. People can buy services, send money, and transfer funds electronically through a prepaid account. Users can transfer money from their accounts or through other payment instruments. At first, the maximum loading limit is only RS. 50,000 per month. However, after the 2021 RBI monetary policy, the balance limit went up significantly. Now, the maximum loading limit allowed is 2 Lakhs INR. Types of Prepaid Payment Instruments Broadly, PPIs are classified into three categories. Listed below are those categories 1.       Closed system PPIs 2.       Semi-closed system PPIs 3.       Open system PPIs Closed system PPIs Gift cards, smart cards, and loyalty program cards fall into this category. These payment instruments work exclusively within the business that issued the card. Here, customers cannot withdraw cash or purchase goods and products from third parties. Also, closed-system PPIs do not need RBI approval or authorization to implement and issue these PPIs. Semi-closed system PPIs YONO, Mobikwik, Phone Pe, PayTM, Gpay, etc. are among the most famous brands that come under this category. Here, companies or banks can issue these semi-closed prepaid payment instruments. However, they must first get approval and authorization from the RBI before proceeding. PPIs used for mass transit systems and prepaid meal instruments also come under this category. However, these PPIs do not provide features like cash withdrawal or fund transfer. The semi-closed system PPIs can be further classified into three categories. They are ·         Minimum detail PPI ·         Full KYC PPI ·         Loading-only from bank PPI Minimum detail PPI: The only requirements here for the PPI holder are their name and phone number. Additional details like address, PAN card, bank account details, etc. are not required by the issuer. The maximum amount of money a user can load into this category is RS. 10,000 per month Loading-only from bank PPI: The only way users can load money in this PPI is through their bank account and no other means. Similar to the previous type, the maximum amount a user can load into a PPI is RS. 10,000. Full KYC PPI: Here, the PPI holder’s relevant details are gathered and shared. Full KYC here includes gathering information like the name, phone number, address,

In the last few months, we’ve seen CBDC or Central Bank Digital Currency becoming a trending topic. There is a good reason why there is growing interest in this technology. Many countries like India are in the process of creating CBDCs. This move is to shift towards a wider use of digital currency. The end goal of this shift to a digital currency is to fuel financial inclusion and bring efficiency to digital payments. The RBI or Reserve Bank of India put in motion its pilot project for the Digital Rupee. They’ve called it the ‘e₹’. There is certainly growing excitement and anticipation around the Digital Rupee. That said, there are plenty of questions and doubts in people’s minds. These doubts leave room for rumors and misconceptions. This article is meant to dispel the more common misconceptions people have about CBDC. Myth 1: CBDC is a cryptocurrency Perhaps one of the biggest misconceptions people have about CBDCs is that they are a cryptocurrency. This led many to pit the two against each other leading to many cryptocurrency VS CBDC articles. However, a CBDC is a digital currency issued by a central bank. That gives it a legal tender status. The CBDC has the same function as physical money. You can think of it as a digital form of cash. Crypto, however, is a form of community money. Most cryptocurrency is not backed by an official institution. That means they are completely unregulated and prone to market fluctuations. A currency that is valuable one day could be worth nothing the next day. Stablecoins are another type of cryptocurrency. They are linked to a national currency or physical assets to protect the coin from market volatility. The catch here is that the stablecoin providers are private companies with commercial interests. Myth 2: Everyone will have central bank accounts There are various types of CBDC developed in different countries. These types range from token-based to account-based concepts. In many countries, the role of the central banks will be minimal involvement. Commercial banks already have a massive database of consumers and maintain a strong relationship with them. Hence, they are the best choice to distribute the CBDC. Additionally, they come equipped with existing apps that they can update to support CBDCs. Also, they know how to manage the KYC process. Myth 3: The CBDC is based on blockchain technology Blockchain is a powerful technology that works well in certain cases. However, a CBDC is provided by a trusted institution and so, blockchain is not essential here. There is some correlation between the design criteria for blockchain and CBDC. Specifically, how some designs can be met by blockchain and distributed ledger technology. However, many more criteria are difficult to achieve. The harder criteria include securing consecutive offline payments, ensuring the highest resilience, and balancing privacy versus transparency. Suffice it to say that while blockchain is powerful, the CBDCs being developed do not utilize this technology. Myth 4: Banks can track every CBDC payment Digital payments in today’s world involve disclosing personal data to a payment service, merchant, or provider. One of the goals of a CBDC is to ensure complete anonymity up to a specific threshold. This approach is similar to how things are done with cash. The idea of balancing privacy versus transparency is one of the biggest sticking points to developing a widely accepted CBDC. Privacy and CBDC must go hand-in-hand to become a success. Banks must find a way to ensure user privacy while also meeting the necessary compliance requirements. That way, the CBDCs do not become a pool for tax evasion or money laundering. Myth 5: CBDCs are a risk to financial and monetary stability Perhaps the biggest misconception people have about CBDC is that they are a risk to the economy without the proper monetary policy. The process of introducing a CBDC is not as simple as people believe. An in-depth analysis is required to ensure there are no unintended side effects. To reduce these risks, a carefully designed CBDC solution should resemble physical cash. That way, everybody involved in the financial system from top to bottom keeps their existing roles. Many people imagine that when a CBDC is introduced, there will be a drastic shift of deposit money into CBDC. The best way to overcome this problem is for commercial banks can provide a digital wallet, and exchange services, and limit the amount of CBDC an individual can hold. This approach is one of many central bank innovations to protect the economy. CBDC solutions should give the private sector options like the ability to be interoperable with other technologies. This approach enables companies to create innovative solutions for specific purposes. Myth 6: People without bank accounts cannot get a CBDC Approximately thirty percent of the world’s adults do not have a bank account. These people cannot participate in the digital economy and enjoy the benefits it provides. One of the objectives of CBDC is financial inclusion. That means allowing everyone to become part of the digital economy. They no longer have to worry about requirements like a bank account or a smartphone. CBDC and the global financial system are working towards enabling even the poorest members of society to use and benefit from a CBDC. We’re already seeing CBDC pilot programs take place in sub-Saharan African countries. Myth 7- An internet connection is required to pay with CBDC A CBDC is a legal tender and payment must be ensured at any time. This requirement applies to areas without network coverage or an internet connection. It must also function when the power is not working, like during a power outage. Many banks are exploring ways to enable consecutive offline payments. This approach ensures that anyone, anywhere, and anytime can make digital payments without fail. Myth 8- A CBDC is just a new version of digital payment The current digital payment schemes either require a subscription, a bank account, credit card, or impose fees. Additionally, not every merchant accepts every