Context:
The Reserve Bank of India (RBI) has levied a fine of â‚ą21 lakh on PhonePe for non-compliance with regulations governing Prepaid Payment Instruments (PPIs).
Key Highlights:
- RBI observed that on certain days, PhonePe’s escrow account balance fell below the mandated minimum.
- PhonePe allegedly did not report the shortfall promptly as required under PPI regulations.
- Escrow Account: A secure account where PPI operators must maintain user funds to ensure their safety and proper usage in line with RBI rules.
Prepaid Payment Instrument (PPI)
A Prepaid Payment Instrument (PPI) is a financial instrument that allows a person to load money in advance and use it for making payments to merchants or transferring funds. PPIs are issued by banks or non-banking financial companies (NBFCs) and are regulated by the Reserve Bank of India (RBI).
Types of PPIs:
- Closed System PPIs – Usable only for merchant-specific transactions (e.g., gift cards).
- Semi-Closed System PPIs – Can be used at multiple merchants but cannot be redeemed for cash. Examples: PhonePe, Paytm wallet.
- Open System PPIs – Can be used for all merchant payments, ATM withdrawals, and fund transfers.
Key Features:
- Preloaded Value: Users load money into the instrument before use.
- Cashless Payments: Enables digital payments without directly using bank accounts.
- RBI-Regulated: Issuers must follow KYC norms, limits, and operational guidelines to prevent misuse.
Under Which Act RBI Did So?
The RBI action against PhonePe for its escrow account balance falling below the mandated minimum was done under the Payment and Settlement Systems Act, 2007 (PSS Act, 2007).
- PSS Act, 2007: Provides the legal framework for regulating payment systems in India.
- Escrow Account Requirement: Prepaid Payment Instrument (PPI) issuers are required to maintain a minimum balance in a designated escrow account, ensuring that customer funds are always secured.
