India: Prepaid Payment Instrument For Mass Transit Systems Introduced

Last Updated: 8 September 2015
Article by Singh & Associates

Most Read Contributor in India, September 2016

In the view of achieving the vision of less-cash society, the Reserve Bank of India (RBI), on July 09, 2015, issued a circular RBI/2015-16/123, to bring under its regulations a new category of semi-closed Prepaid Payment Instruments (PPIs).

Under mass transit systems (MTS), as public at large are involved, a number of small value cash payments transactions take place. The RBI has introduced a new category of instrument i.e. in form of cards which shall be issued by the MTS operators (like railway, bus or taxi service providers), so that it can be used in the transportation within these systems. The RBI had been receiving requests from various segments of mass transit service providers, such as metro train and road transport services, indicating the need for introduction of prepaid instruments in this segment, to enhance the public convenience.


Mass transit, in other words mass transportation or public transportation, is the way of movement of people within the urban areas, wherein they are carried in same vehicle. This leads to lower costs in carrying each person as the costs are shared by many people. Examples of such systems are buses, trains, taxis etc.


Mass transit System (MTS) operators operate the networking of these mass transit systems. In India, such MTS operators are Indian Railways, Mumbai Metro, Delhi Metro and even local buses.


These are the value stored instruments which represents the underlying value paid by the holders in cash, by debit in bank account, or by credit card. The PPIs can be issued as smart cards, magnetic stripe cards, internet accounts, internet wallets, etc. which can be used to access the pre-paid amount.

These instruments are regulated under the Payment & Settlement Act, 2007 and other Regulations formulated under it.


The Regulator has issued a circular, wherein it has introduced the new category of pre-paid instruments with the following features:

i. The semi-closed PPIs will be issued by the mass transit system operator (PPI-MTS) after authorization under the Payment and Settlement Systems Act, 2007 to issue and operate such semi-closed PPIs;

ii. The PPI-MTS will necessarily contain the Automated Fare Collection application related to the transit service to qualify as PPI-MTS;

iii. Apart from the mass transit system, such PPIMTS can be used only at other merchants whose activities are allied to or are carried on within the premises of the transit system ;

iv. The PPI-MTS issuer will ensure on-boarding of merchants (only those permissible as under (iii) above) following due procedure applicable to any other PPI issuer;

v. The PPI-MTS will have minimum validity of six months from the date of issue;

vi. The issuer may decide upon the desired level of KYC, if any, for such PPIs;

vii. The PPI-MTS issued may be reloadable in nature and at no point of time the value / balance in PPI can exceed the limit of Rs. 2,000/- (Rupees Two Thousand Only);

viii. No cash-out or refund will be permitted from these PPIs;

ix. Funds transfer under the Domestic Money Transfer (DMT) guidelines will also not be applicable to these PPIs;

x. All other extant guidelines for escrow arrangement, customer grievance redressal mechanism, agent / merchant due diligence, reporting and MIS requirements etc. applicable to issue of PPIs would continue to be applicable in respect of PPI-MTS.

Based on experience, the guidelines will be reviewed by the RBI taking into account both convenience and security aspects. The above guidelines will come into effect from the date of issue of circular. The other provisions of Master Circular dated July 1, 2015 (as amended from time to time) will remain unchanged.


These Prepaid payment Instruments for the mass transit system, shall be similar to the pre-paid metro cards currently in use. However, these existing cards are not regulated under existing PPI regulations. These existing cards are issued by few banks like Sate Bank of India (SBI) and ICICI Bank, in tie-up with MTS operators.

As these guidelines would now apply to the new category of PPIs, the money will have to go to an escrow account, instead of the current account of MTS operators. Also, the other existing PPI guidelines shall be applicable on these new PPI.

Such measure of the RBI to allow MTS operators to issue their own cards was intended to enhance the mode of such small amount payments from cash based payments to electronic payments. Also it would play a significant role in achieving the vision of less-cash society.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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