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What is Prepaid Payment Instrument?


A committee reviewing customer service standards for RBI (Reserve Bank of India) regulated entities has recommended the extension of Deposit Insurance and Credit Guarantee Corporation (DICGC) toPrepaid Payment Instrument (PPI) to protect against fraud and unauthorized transactions.


GS III: Indian Economy

Dimensions of the Article:

  1. What are PPIs?
  2. What is PPI interoperability?
  3. How does PPI interoperability through UPI work?
  4. About DICGC

What are PPIs?

  • Prepaid Payment Instruments (PPIs) are payment methods that can be used to purchase goods and services and send/receive money by using the stored value in the wallet.
  • Users have to pre-load the wallet with a desired amount. The amount can be loaded/reloaded against cash or through debit to bank account, or by using credit/debit cards, UPI, or any other approved payment method in India.
  • PPIs can only be used in Indian rupees. PPIs can be in the form of mobile wallets, physical smart cards, secure tokens, vouchers, or any other method that allows access to prepaid funds.

What is PPI interoperability?

  • Previously, to use PPI at any merchant, it was necessary that the concerned merchant was engaged directly by the specific PPI issuer (specific network).
  • All PPIs with which the merchant did not have a direct tie-up would get rejected.
  • The most prevalent form of PPI used in the country is the mobile wallet, and this restriction meant that customers of one specific mobile wallet could spend the money in the wallet only at specific merchant locations which were directly tied up with the same PPI wallet provider.
  • For example, if you had a Paytm or Mobikwik wallet, you could only use it at merchants that accepted Paytm or Mobikwik QR codes.
  • To overcome this limitation of PPIs, the RBI has mandated interoperability among different PPI issuers.
  • Subsequently, PPI issuers tied-up with NPCI for issuing
    1. interoperable RuPay PPI cards
    2. creating interoperable wallets on UPI rails.
  • Prepaid instruments in the form of wallets can now be linked to UPI, thus creating interoperable wallets on UPI rails.

How does PPI interoperability through UPI work?

  • After linking one’s PPI wallet to UPI, customers can transact using Scan and Pay on all UPI interoperable QR codes.
  • This will enable the use of PPI wallets at all merchant locations.
  • The user can also send/receive money to any other wallet user.
  • Similarly, a merchant with any UPI QR code can now accept payments from any PPI issuer or mobile wallet.
  • PPI on UPI will speed up the growth of merchant transactions in rural areas and further deepen digital financial inclusion by catering to use cases such as healthcare, transit, education, utility bills, etc.


  • DICGC is a subsidiary of RBI that provides deposit insurance to ensure stability in the financial system.
  • It protects small depositors by guaranteeing the safety of their deposits in case of bank failures.
  • The insurance coverage extends to all licensed commercial banks, including LABs, PBs, SFBs, RRBs, and co-operative banks regulated by RBI.
Deposit Insurance Coverage:
  • DICGC insures various types of deposits, such as savings, fixed, current, and recurring, including accrued interest.
  • Each depositor is insured up to Rs 5 lakh (previously Rs 1 lakh) for the combined principal and interest held in a bank during liquidation or failure.
Exclusions from Coverage:
  • DICGC does not cover deposits of foreign governments, central/state governments, inter-bank deposits, certain cooperative bank deposits, funds received outside India, or amounts exempted with RBI approval.
Funds Maintained by DICGC:
  • Deposit Insurance Fund, Credit Guarantee Fund, and General Fund are maintained by DICGC.
  • The Deposit Insurance Fund and Credit Guarantee Fund are funded by insurance premiums and guarantee fees, respectively, used to settle relevant claims.
  • The General Fund covers establishment and administrative expenses of the Corporation.

-Source: Indian Express

April 2024