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Home >Money >Personal Finance >Three types of prepaid payment instruments you must know

Prepaid payment instruments (PPIs) help facilitate the purchase of goods and services, including financial services, remittances and fund transfers to family and friends against the value stored on such instruments.

These instruments are generally pre-loaded cards and, in some cases, have a pre-defined purpose of payment.

Some of the examples of PPIs include Paytm and GPay (semi-closed system PPIs), gift cards (closed system PPIs) and debit or credit cards (open system PPIs).

In today’s piece, we take a look at three types of prepaid payment instruments.

Closed system PPIs

You cannot withdraw cash from such kinds of PPIs. These PPIs help in facilitating the purchase of goods and services from that entity only.

Besides, these instruments cannot be used for payments or settlement for third-party services.

The issuance and operation of such instruments are not classified as a payment system and do not require approval or authorization from the Reserve Bank of India (RBI).

Semi-closed system PPIs

These payment instruments do not allow you to make a cash withdrawal, irrespective of whether they are issued by banks or non-bank institutions.

For instance, PPIs such as HDFC Bank’s PayZapp and State Bank of India’s YONO are approved by the central bank and non-bank PPIs such as Paytm and GPay are authorized by RBI for the purchase of goods and services, including financial services, payments, money transfer, remittance facilities, etc.

They can normally be used at any merchant location that has a specific contract with the issuer to accept the PPIs as payment instruments.

Open system PPIs

The most commonly used PPIs are debit and credit cards. You can make a cash withdrawal from these PPIs.

However, be cautious while withdrawing cash from a credit card because by doing so, you will be charged a high interest rate from the day of cash withdrawal.

These PPIs issued by banks (approved by the central bank) can also be used at any merchant for the purchase of goods and services, including financial services, remittance facilities, etc.

Cash withdrawal at ATMs, point of sale terminals and business correspondents is permitted through these PPIs.

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