According to the new guidelines, only banks and finance companies will be allowed to issue pre-paid cards which are accepted outside a closed group. The RBI will also impose conditions on other prepaid cards such as lunch coupons and gift payment cards which can be used at merchant outlets. Consequent to the passage of the new Payment and Settlement System Act 2007, the central bank is expected to issue its guidelines soon.
In its approach paper, RBI has described pre-paid cards as payment cards which can take the form of smart cards, magnetic stripe cards, internet accounts, internet wallets, internet purse, mobile accounts, mobile wallets, mobile purse and paper vouchers. RBI has organised card issuers into four categories, depending on the levels of the user group and the acceptance of the prepaid card: closed system, semi-closed, semi-open system and open system cards.
Closed-system instruments are those issued by business establishments for use at that establishment only or for availing services from a service provider. Examples of such instruments include gift vouchers and mobile phone prepaid cards. There are also semi-closed instruments which are redeemable at a group of establishments associated with a particular brand and semi-open system instruments which can be used in re-loadable or non-reloadable formats without the cash withdrawal option. Only open system cards allow for both payments and withdrawals. RBI has asked all non-bank entities issuing these cards to maintain the proceeds in an escrow account with a bank. In order to issue these payment instruments, companies have to receive a licence from RBI.
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