Prepaid Payment Instruments - UPSC Notes

With time, technology has also advanced significantly. From impacting the daily lives to shaping consumer behaviour, technology is integral to human civilisation. One such contribution of technological development is prepaid payment instruments. These are such methods that facilitate the goods’ purchase and the services. The most important thing about these methods is that the value is already stored. 

Over the years, many payment modes have been introduced and approved by the Reserve Bank of India (RBI). These constitute an important part of the UPSC prelims and mains economy section. 

Candidates preparing for the upcoming civil service examination can refer to the set of links given below for preparation:

Prepaid Payment Instruments UPSC

The UPSC syllabus generally includes questions regarding the mechanism and purposes of these prepaid payment methods. In the context of India, it appears that they have gained quite public traction over the last decade, and the modes of such instruments have also diversified a lot.

Prepaid payment instruments’ examples include smart cards, online accounts, online wallets, stripe cards, paper vouchers, etc. The primary objective of these instruments is to get access to the amount already prepaid. So, one can purchase the required goods without any physical exchange of cash or card. This new way of payment is a direct result of globalisation and is therefore considered a primary facet of contemporary technology.

What do these instruments include?

Prepaid payment instruments in India typically include online wallets, paper vouchers, prepaid smart cards and so on. These methods are highly effective in facilitating the purchase of goods. Due to their ever-increasing demand and use, these have become a constant element of the consumer cycle in the present day.

India has also taken many initiatives on transforming the country into a digitally equipped nation with its Digital India campaign. Many online modes of payment have been introduced which are easily accessible and secure. 

What are the categories of payment instruments?

There are various categories to these instruments that facilitate such purchases, which are

• closed system
• semi-closed system
• mobile prepaid
• open system 

Each of these categories has a distinct way of operation and payment.

The closed prepaid payment instruments refer to a transaction that a person issues in order for them to purchase goods and services. Semi-closed systems operate with a cluster of merchants that facilitate the purchase. These categories do not allow for the withdrawal of cash by the holder.

An open system, on the other hand, provides for cash withdrawal. In terms of effectiveness, an open system allows for more mobility, as it operates within the circles of both the consumers and the retailers. This facility makes it more transparent and ideal for day-to-day transactions.

Lastly, a mobile prepaid instrument is a method that focuses on the ‘value-added service’ from a mobile service provider or providers.

What is the PPI limit?

The prepaid payment instruments limit refers to the limit of value that a PPI can contain. This is a very crucial factor in the use of such instruments. For example, in the case of a minimum detail instrument, the maximum amount you can access is INR 10,000. But in the case of a full KYC PPI, the amount can increase to INR 1 lakh. This is how the limits of these instruments vary with the type of instrument used.

What is customer notice?

While preparing UPSC notes, you will come across the term ‘customer notice’. This notice informs the user about the fees that are applicable against the use of the instrument, the validity period, the necessary terms and conditions that the owner needs to abide by while using the instrument, and the terms of value depreciation, etc.

For a solid and fool-proof IAS preparation, you need to know adequately about PPI. This new entrant in the financial exchange modes is still in a state of flux where it is constantly evolving and has things added on to them. In terms of functionality, these instruments vary with the context, as stated in the categories of these instruments.

For further reading, UPSC Exam aspirants are advised to refer to other related BYJU’S study materials available online on this topic.