Prepaid payment instruments are pre-loaded with a value so that they can be used to buy goods and services. These come in the form of magnetic strip cards, smart cards, Internet accounts and wallets, mobile accounts and wallets and vouchers, among others and are offered by banks and non-banking finance entities. As per the Reserve Bank of India (RBI), 30.60 million such instruments were issued in fiscal 2012. The maximum amount that such an instrument can carry is Rs.50,000, unless specified otherwise. Broadly, there are four types of cards under which they can be classified.
These are issued by business houses and can only be used at the outlets of that particular business. For instance, calling cards and gift vouchers of retail outlets. Businesses issuing these instruments are exempt from the purview of RBI but are subject to certain limitations. The companies need to inform RBI whenever such schemes are floated. Such instruments can’t be loaded with a value higher than Rs.5,000 and can’t be used to withdraw money or buy any other such instrument.
These are offered by a group of businesses with clearly defined avenues, where they can be redeemed. The businesses enter into a pact with the issuer to honour such instruments. Even these instruments can’t be used to withdraw cash. One such instrument is Sodexo cards, which can be redeemed at various retail and food outlets.
These can be used to purchase goods and avail services at any merchant outlet where these are accepted. Gift card is one such instrument. These, too, can’t be used to withdraw cash.
Open system instruments offer the services that a semi-open system offers and in addition allow cash withdrawals. An example is travel cards.
Except for the open system card, you can redeem the value of the card within the expiry date and the scheme is being withdrawn. Such cards have a minimum validity of six months and they do not become invalid immediately on the date of expiry; rather the value depreciates at the rate of 10% of the remaining value per month.