Think of prepaid and the first thing that will come to your mind is the scratch card you would have bought to recharge your cellphone. But prepaid has since acquired a whole new meaning with prepaid payment instruments coming into existence. These include not just the traditional scratch cards, but also smart cards, virtual cards, Internet wallets, mobile wallets and mobile and your Internet account.
You can use these to pay bills while on the move, your driver could use it to remit money back home and your child won’t have to rely on your credit card to make purchases online.
What are prepaid payment instruments
The Reserve Bank of India (RBI) guidelines define them as payment instruments that allow you to purchase goods and services against the value stored in them. A customer can purchase the value and store it on the instrument. The transaction can be done through cash, debit or credit card.
Such payment instruments include paper vouchers, magnetic cards and smart cards, Internet and mobile accounts and wallets. There are three types of payment instruments—closed, semi-closed and open instruments. The last two enable mobile transactions.
These are generally issued by business establishments for use at their respective outlets. It can be redeemed only at an outlet of the issuing merchant and cannot be exchanged for cash. A gift voucher issued by Shopper’s Stop is an example.
These come handy if you frequent a retail outlet.
This can be redeemed at a set of retail outlets with whom the issuer has tied up. These do not permit cash withdrawals. Several operators in the country such as Oxigen Services India Pvt. Ltd, Itz Cash Card Ltd, Obopay Inc., ZipCash Card Services Pvt. Ltd issue semi-closed products in various forms. For instance, Itz Cash issues prepaid cards, Oxigen Services and ZipCash allow you to open a prepaid wallet online, while Obopay has tied up with banks to issue mobile wallets.
These instruments can also be used to make bill payments and payments for purchases at designated local retail outlets.
How to register: The process is more or less uniform across operators. Sign up for the service by filling up the required form, attach the necessary documents, load the cash and you can then use the instrument at the designated point of sale or to make utility bill payments.
For instance, Oxigen Services and ZipCash allow you to register online. Depending upon the account you are signing up for, you can scan and upload or email the necessary identity proofs that are verified and authenticated by them.
When you sign up for the service you are given a valid username and password. For instance, Oxigen Services gives you a 12-digit number and a personal identification number for the same.
How to store value: You can load value in your account by making a credit or debit card payment. In fact, ZipCash also offers you the option of delivering a scratch card home to refill your prepaid account.
Once the money has been loaded you can use it to make bill payments and shop online. Says Deepak Chandani, global president, Obopay Inc., global mobile payments company, “If you have four bills to pay—mobile, electricity, pipeline gas and landline—you don’t have to go to individual offices. All the tie-ups are done by us at the back-end. So all you have to do is give us your consumer number and we will enable the facility.”
How much value can you store: RBI has prescribed that the maximum value of any pre-paid payment instruments shall not exceed Rs 50,000. All entities issuing such instruments are expected to put in place the necessary systems to comply with the know-your-customer (KYC)/anti-money laundering/combating financing of terrorism guidelines. Here are some exceptions.
First, an individual can get a single active instrument with a value up to Rs 1,000 by producing any identity card
Second, on the production of certain officially valid documents such as permanent account number card and passport, the limit can be extended to Rs 5,000.
Third, KYC is not needed for an instrument that can be used only to make utility bill payments with service providers that maintain the full identity of the customers. These bills include electricity, water, telephone and broadband bill up to an overall limit of Rs 10,000.
Apart from the above-mentioned limits, every operator also has its internal limits and other formalities.
Besides facilitating purchase of goods and services, these instruments also permit cash withdrawal at automatic teller machines (ATMs). Currently, only banks can issue these.
The process to register for this is similar to that of a semi-closed instrument. As of now, only two banks are offering this service—Yes Bank Ltd and Union Bank of India (UBI). Both have tie-ups with Obopay. A customer has to open a prepaid account with any of these two banks by completing all the necessary KYC formalities. The bank will not pay you an interest on the funds set aside in this account.
The balance can be used not just to make payments and online shopping, but can also be used to send money to friends or relatives. The beneficiary, however, needs to be a part of the network. He can save it in his mobile wallet or can even go to a banks’s business correspondent, a partner authorized to extend the services of the bank through its outlets, to pull out cash.
Says Chandani, “In case of open instruments, people feel secure if it is backed by a bank. Since they can access it from the mobile, it’s easy. At the same time, they are at peace because they know the money is safe in a bank. We also give the option of a debit card, so in case the business correspondent is closed, you can go to an ATM and withdraw the money.”
This can be accessed by a semi-closed as well as a open instrument. Only banks which have been permitted to provide mobile banking transactions by RBI shall be permitted to launch mobile based pre-paid payment instruments. For instance, Yes Bank and UBI offer the service with Obopay. Through a semi-closed or a closed instrument, you can install the mobile wallet application on your cellphone and access it whenever the need be.
Most other prepaid instruments such as prepaid cards, virtual cards and Internet wallets can also be used through a cellphone.
Who can use
These instruments work best for those who may not have a credit or debit card, but would want ease in bill and ticketing payments. Moreover, they can be a huge advantage and can provide much ease to the section that does not have access to formal channels.
Says Vivek Saxena, co-founder and CEO, ZipCash, “Apart from teenagers who shop online but may not have a credit card, this is also meant for working people who are looking for a safe and easy way to make their payments. You could also use this if you don’t want to use your credit card for small transactions.”
These are safer bets compared with a credit or debit card since your liability is limited to the value you store in cases of fraud.