What is Prepaid card ? how prepaid card is different from debit card ? Debit Card Vs Prepaid Card. Prepaid cards or PPIs , also known as virtual card is a plastic alternative to carrying money around. Prepaid cards are pre loaded with funds paid in advance by the cardholder. Prepaid cards are different from credit card , because you spend the funds that have already been paid by you. In case of credit card, you spend with borrowed funds. Prepaid Payment Instruments (PPIs) can be used for transactions like purchase of Goods and Services, Funds Transfers,against the value already paid for issue of such instruments.
Who can issue prepaid card ?
Banks and non-bank entities have been issuing prepaid payment instruments (PPIs) in the country after obtaining necessary approval / authorisation under the Payment and Settlement Systems Act, 2007 from Reserve Bank of India. These entities have been operating within the framework of the initial guidelines on “Issuance and Operation of PPIs” issued in April 2009 and amended from time to time.
Types of Prepaid Card or Prepaid Payment Instruments :
PPIs can be issued in form of smart cards, magnetic stripe cards, internet accounts, internet wallets or digital wallets, mobile accounts, mobile wallets, paper vouchers and any such instrument which can be used to access the pre-paid amount.
Prepaid Payment Instruments are regulated by the RBI and as per the RBI regulations, there are three types of PPIs explained below :
- Closed system PPIs
- Semi-closed system PPIs
- Open system PPIs
Closed System PPIs :
These PPIs are issued by an entity, including individuals, proprietorship firms, partnership firms etc., for facilitating the purchase of goods and services from that entity only. These instruments do not permit cash withdrawal or redemption. As these instruments cannot be used for payments and settlement for third party services, the issue and operation of such instruments are not classified as payment systems requiring approval / authorisation by the Reserve Bank of India.
Semi Closed PPIs :
PPIs which can be used for purchase of goods and services, including financial services, remittance facilities etc. at a group of clearly identified merchant locations/ establishments which have a specific contract with the issuer (or contract through a payment aggregator / payment gateway) to accept the PPIs as payment instruments. These instruments do not permit cash withdrawal, irrespective of whether they are issued by bank or non-bank PPI Issuers. Semi-closed PPIs issued by banks and non-banks would have same features, unless otherwise specified.
Open System PPIs :
PPIs which shall be only issued by banks, can be used for purchase of goods and services, including financial services, remittance facilities etc. at any merchant locations. Banks issuing such PPIs shall also facilitate cash withdrawal at ATMs / BCs.
Only Banks can issue open system payment instruments. On the other hand, closed and semi closed system instruments can be issued by NBFCs and other entities who avails a license from RBI.
What is difference between prepaid card and debit card ?
Prepaid cards are not linked to a bank account. While debit cards are linked with your saving bank account.
You can’t spend money more that the value loaded in prepaid card. You can overspend in case of debit card if you have availed overdraft facility from your bank thus going into debt.
Unlike credit cards, Both let you spend money directly instead of borrowing funds.