33. PI — Prepaid Cards & Wallets

Why am I clubbing prepaid cards and wallets in same section…. Because they are same in many aspects

• Instruments are issued under PPI (Prepaid Payment Instruments) License of RBI (Link to the list of PPI entities: entry 20 to 64)
• Spend is limited to the load or balance available on the instrument
• Available balance doesn’t earn interest as funds are kept in nodal account

Of course, there are few deviations:

• Acceptance channels may vary for prepaid cards and wallets (e.g. wallet can’t be used on POS machine but card can be swiped)
• Cards come with expiry date but wallets don’t (technically)

Types and Variants:

There are two main types of prepaid instruments:

• Non-reloadable: Card can be loaded ONE time but can be used multiple times before the expiry date till the balance amount is exhausted (E.g. Gift Cards)
• Reloadable: Cards can be loaded multiple times and can be used multiple times till the instrument has validity period (E.g. PayTM wallet, meal card, forex card)

Then there are different variants depending on their acceptance network.

• Closed loop: acceptance is limited to a merchant or group of merchants
• Semi-Closed: Accepted by large network of merchants (but not all)
• Open loop: accepted by wider network of merchants

Few conditions about prepaid payment instruments:

a. Limit on amount that can be loaded (one time, per month, per year etc.)

b. Currency that can be loaded (Domestic — INR only, Forex — Other currencies)

c. Restriction on cash withdrawal through ATM or transfer to bank a/c (e.g. Gift Cards are not allowed for cash withdrawal but forex cards are)

d. Restriction on acceptance:

• At MCC (merchant category code) level where card is accepted only with type of merchants (e.g. Sodexo card at Grocery merchants) or
• at MID/TID level e.g. health card that works on selected partner hospitals or
• at territory level (e.g. Forex card issued by Indian banks is not accepted in India, Nepal and Bhutan)

At one point of time, prepaid cards had great potential or at least few people in industry thought so… think of it… a digital payment instrument that doesn’t require bank a/c or credit history so there abundant potentials/use cases such as financial inclusion, money transfer etc. But business model has its own issues (a) KYC process (b) card procurement and shipment cost © banks faced challenge in positioning prepaid cards against their own debit or credit cards

Before industry figured out the solution for these problems, ‘wallets’ came and stole the thunder… Only few types of prepaid cards are alive and prospering: Gift Cards of big brands (because these are lazy person’s gifting choice), Forex cards (Quintessential for overseas trips) and Specialised cards such as Sodexo.

Wallets also didn’t do that great over the period of time… PayTM became juggernaut with huge user base and wider acceptance network but other wallet players struggled or struggling.

Even wallets are struggling with KYC compliance. Anyway deadline is keep extending but it’s inevitable.

Merchants continue to have their closed loop wallets as easy way for pushing refunds and tactic for increasing customer stickiness. But with instant refund solutions, these wallets also may lose their charm.

Of all payment instruments, I like the Forex card the most (strange… but I have favourite). Forex cards are fascinating… I have used them personally and professionally, launched few forex cards. How different currencies can be loaded on same card, how amount debited… so on. If you want to know more about them then refer any big bank’s forex card page <HDFC><Axis>