- Date : 17/06/2021
- Read: 4 mins
Do you know RBI has allowed cash withdrawals via payment apps and prepaid cards? Know its new incentives for payment providers
Soon you will no longer need a bank account to send and receive payments via RTGS and NEFT. A digital wallet like PhonePe or a prepaid card like RuPay will do just fine. The RBI has allowed prepaid payment instruments (PPIs) like payment banks and prepaid card networks to offer such services. PPIs are nothing but non-banking financial companies (NBFCs) licensed to offer payment services to customers.
That’s not all. Soon, you will also be able to withdraw cash from ATMs using PPIs. The only condition is that the PPI concerned should be compliant with full KYC norms.
What is the reason behind this move?
The RBI move is being seen as a step to boost interoperability between banks and NBFCs. It gives consumers the ability to send and receive money from different bank accounts into their digital wallet and vice versa. In many ways, users will now be able to use prepaid cards and digital wallets just like a bank account.
The bigger motive seems to be to promote full KYC verification as opposed to minimum KYC followed by some payment services. The extra flexibility of cash withdrawal is also expected to make digital payments more attractive to consumers, especially in rural and semi-rural areas.
Related: UPI transactions hit all-time high in July as digital payments become key
What do full KYC and minimum KYC refer to?
Payment banks often enrol customers based on their mobile number and a government issued ID such as Aadhaar card. This ‘minimum KYC’ (Know Your Customer) process is to confirm the identity of users in line with anti-money laundering/ countering financing of terrorism (AML/CFT) regulations. However, minimum KYC comes with restrictions on the type and amount of transactions you can make. For example, Paytm users with minimum KYC accounts can only maintain a balance of up to Rs 10,000 per month.
On the other hand, full or complete KYC involves PAN and address proof verification to authenticate users. Under the present rules, payment accounts opened under minimum KYC are valid for a maximum of 24 months, after which full KYC is mandatory for continued usage. The RBI recently allowed video KYC or e-KYC as an alternative to the physical submission of documents for full KYC status. The latest move is a step further in this direction. Large cash withdrawals from banks, post offices will attract TDS. Read this to know more.
Related: How digital payment methods are changing the face of the Indian economy
Going forward, what changes can be expected while using payment apps and cards?
In a nutshell, NBFC payment service providers can now:
- Double the customer account limit: The RBI has raised the maximum balance per user of NBFC payment banks from Rs 1 lakh to Rs 2 lakh. This increase in the maximum end-of-day balance will enable NBFCs to offer a wider range of services to customers. The move is expected to “minimise the settlement risk in the financial system and enhance the reach of digital financial services to all user segments,” according to an RBI press release.
- Access RTGS and NEFT networks: RTGS and NEFT are forms of centralised payment networks controlled by the RBI. Earlier, the apex bank only allowed banks to access these networks for providing money transfer services to customers. However, NBFC payment service providers like digital wallets, prepaid cards, and third-party ATM networks will now be able to take direct membership in RTGS and NEFT.
- Permit cash withdrawal at ATMs: The RBI has permitted full KYC non-bank payment service providers to allow cash withdrawals at ATMs. This is expected to level the playing field between banks and non-banks and promote financial inclusion for consumers in smaller towns and cities. Which mode of payment is better – NFC or UPI?
Soon you will no longer need a bank account to send and receive payments via RTGS and NEFT. A digital wallet like PhonePe or a prepaid card like RuPay will do just fine. The RBI has allowed prepaid payment instruments (PPIs) like payment banks and prepaid card networks to offer such services. PPIs are nothing but non-banking financial companies (NBFCs) licensed to offer payment services to customers.
That’s not all. Soon, you will also be able to withdraw cash from ATMs using PPIs. The only condition is that the PPI concerned should be compliant with full KYC norms.
What is the reason behind this move?
The RBI move is being seen as a step to boost interoperability between banks and NBFCs. It gives consumers the ability to send and receive money from different bank accounts into their digital wallet and vice versa. In many ways, users will now be able to use prepaid cards and digital wallets just like a bank account.
The bigger motive seems to be to promote full KYC verification as opposed to minimum KYC followed by some payment services. The extra flexibility of cash withdrawal is also expected to make digital payments more attractive to consumers, especially in rural and semi-rural areas.
Related: UPI transactions hit all-time high in July as digital payments become key
What do full KYC and minimum KYC refer to?
Payment banks often enrol customers based on their mobile number and a government issued ID such as Aadhaar card. This ‘minimum KYC’ (Know Your Customer) process is to confirm the identity of users in line with anti-money laundering/ countering financing of terrorism (AML/CFT) regulations. However, minimum KYC comes with restrictions on the type and amount of transactions you can make. For example, Paytm users with minimum KYC accounts can only maintain a balance of up to Rs 10,000 per month.
On the other hand, full or complete KYC involves PAN and address proof verification to authenticate users. Under the present rules, payment accounts opened under minimum KYC are valid for a maximum of 24 months, after which full KYC is mandatory for continued usage. The RBI recently allowed video KYC or e-KYC as an alternative to the physical submission of documents for full KYC status. The latest move is a step further in this direction. Large cash withdrawals from banks, post offices will attract TDS. Read this to know more.
Related: How digital payment methods are changing the face of the Indian economy
Going forward, what changes can be expected while using payment apps and cards?
In a nutshell, NBFC payment service providers can now:
- Double the customer account limit: The RBI has raised the maximum balance per user of NBFC payment banks from Rs 1 lakh to Rs 2 lakh. This increase in the maximum end-of-day balance will enable NBFCs to offer a wider range of services to customers. The move is expected to “minimise the settlement risk in the financial system and enhance the reach of digital financial services to all user segments,” according to an RBI press release.
- Access RTGS and NEFT networks: RTGS and NEFT are forms of centralised payment networks controlled by the RBI. Earlier, the apex bank only allowed banks to access these networks for providing money transfer services to customers. However, NBFC payment service providers like digital wallets, prepaid cards, and third-party ATM networks will now be able to take direct membership in RTGS and NEFT.
- Permit cash withdrawal at ATMs: The RBI has permitted full KYC non-bank payment service providers to allow cash withdrawals at ATMs. This is expected to level the playing field between banks and non-banks and promote financial inclusion for consumers in smaller towns and cities. Which mode of payment is better – NFC or UPI?
