India: Draft Prepaid Payment Instruments Rules, 2017: An Analysis

Last Updated: 3 May 2017

Introduction

The advent of demonetization has given a push towards a digitalized and cashless economy, promoting mobile wallets and electronic payments. With the accelerated use of electronic payment mechanisms and enormous personal and financial data shared on the applications, the central government has announced the draft Information Technology (Security of Prepaid Payment Instruments) Rules 2017 ("Draft PPI Rules"), under the Information Technology Act, 2000 ("IT Act"). The purpose of the said rules is to ascertain the integrity, security and confidentiality of the prepaid payment instrument(s) ("PPI").

This newsletter evaluates and comments on key provisions of the Draft PPI Rules, in light of the corresponding Master Circular by Reserve Bank of India ("RBI") on PPI1 ("Master Circular") and the data protection rules under the IT Act2 ("SPDI Rules").

1. Key Provisions

1.1 Definition of PPI

In the Draft PPI Rules, PPI is defined as a payment instrument for purchase of goods and services, including funds transfer, against the value stored in the instrument.3 The definition is identical to the one provided in Clause 2.3 of the Master Circular. Currently, the definition only takes into account the payment into PPI using cash, debit to a bank account and credit card. Potentially, the definition may have to be revisited in view of technological progress, if other modes of adding money to a PPI, such as inter-PPI transfer are introduced. A wider definition of PPI will perhaps be more useful to avoid a regulatory gap in the future.

1.2 Security standards and practices

The Draft PPI Rules require an issuer to provide for a dual security system, an information security policy for the security of its payment system, and reasonable security practices and procedures for the financial data of the customers.4 In addition, it's essential to adhere to the security measures provided in the Master Circular, wherein the issuer should have an adequate information and data security infrastructure.5

The three set of regulations stated above provide for three different security standards. These security standards suffer from certain overlap. For instance, the reasonable security practices and procedures under the SPDI Rules include the "managerial, technical, operational and physical security measures";6 the information security policy under the Draft PPI Rules may fall under the operational and technical security measures of the reasonable security practices and procedures. The security measures under the SPDI Rules are wide-ranging; therefore, a separate information security policy seems unnecessary.

Perhaps, a better approach will be to provide for comprehensive set of security standards and policy or, alternatively, synchronize the regulations provided under the Master Circular, SPDI Rules and the Draft PPI Rules. For example, the Master Circular can provide that the information and data security infrastructure of the issuer will be considered adequate if it follows the practices and procedures under the SPDI Rules.

1.3 Personal information

Rule 7 of the Draft PPI Rules define personal information to include "information collected from the customer or elsewhere at the time of issuance of the pre-paid payment instrument.." and "information collected during use of the payment system...".The SPDI Rules state that personal information means "information that relates to a natural person, which, either directly or indirectly, in combination with other information available or likely to be available with a body corporate, is capable of identifying such person". Financial information is also covered under sensitive personal data or information under the SPDI Rules.7

Draft PPI Rules basically reiterate what is already covered under the SPDI Rules, albeit, in a different language. A standardized definition of personal information, as information that can be identified with a natural person, instead of varying definitions that quintessentially indicates the same meaning of personal information, might have been a better option.

1.4 Cyber incident and cyber security incident

Draft PPI Rules require an issuer to have a mechanism to deal with cyber incident and cyber security incident. The former means any real or suspected adverse event, likely to cause or cause an offence or contravention, harm to critical functions across public and private sector, by impairing the integrity, confidentiality, availability of the electronic information system and services. Such impairment should result in an unauthorized access or use of the computer resource or denial of service or disruption, change to data or information without authorization, or it should threaten public safety, undermine public confidence, have a negative effect on the economy and diminish the security posture of the nation.8 Cyber security incident on the other hand means any real or suspected adverse event relating to cyber security that violates the applicable security policy. Such violation should result in an unauthorized access or use of the computer resource or denial of service or disruption, change to data or information without authorization.9

In short, cyber incident and cyber security incident indicates adverse event likely to result in an unauthorized access. It is interesting to note that this same definition of cyber security incident is provided under Rule 2(1)(d) of SPDI Rules as "cyber incident".

The definition of cyber incident is wide enough to include cyber security incident. A separate definition of the latter seems unnecessary. Further, the two definitions should not be contingent on unauthorized access, but an attempt to cause such an event should be sufficient. Section 84C of the IT Act provides that even an attempt to commit an offence under the IT Act is punishable. In light of this, occurrence of real or suspected adverse event that violates security policy or causes an offence should be adequate to constitute cyber incident/cyber security incident.

Further, such incidents are required to be reported to the national Computer Emergency Response Team ("CERT-in").10 In addition, the recent draft master direction by RBI on PPI requires reporting to RBI of such incident.11 A consolidated reporting requirement to one entity may be more helpful. Interestingly, there is no mandatory requirement of reporting such incidents to the customer,12 which should be made obligatory.

1.5 Grievance redressal mechanism

Rule 16 of Draft PPI Rules require an issuer to designate a grievance officer for receiving complaints from the customer, and publish the details of the grievance officer on its website along with the procedure for making the complaint. An almost identical provision is specified under Rule 5(9) of SPDI Rules.

Further, in an inevitable overlap, Clause 14.2 of Master Circular also provides for the grievance redressal mechanism. It states that "the non-bank PPI issuer shall put in place an effective mechanism for redressal of customer complaints along with escalation matrix and publicise the same for the benefit of customers...."

The aforementioned provisions have the propensity to put an issuer in a quandary over the redressal mechanism that it ought to follow. While the Master Circular specifies the requirement of an escalation matrix, the draft PPI Rules limits it to just having a grievance officer. PPI issuer should be mandated to provide an inbuilt escalation mechanism, for effective grievance resolution without approaching the courts.

Further, the nature of grievances for which customers can approach a grievance officer is unclear. The draft PPI Rules can possibly also incorporate a suggestive list of grievances for which the grievance officer can be approached.

1.6 Authentication of information, traceability and retention of information

Apart from overlap with the SPDI Rules and Master Circular, Draft PPI Rules per se don't promise a comprehensive protection to PPI or promote ease of business. For instance, Rule 6(2) states that an issuer must adopt multiple factor authentication process when a customer tries to make a payment for goods and services from the value stored in a PPI. The popularity of a PPI, like a mobile wallet lies in the ease of use; unlike internet banking or debit card payment, it doesn't have multi-layered authentication. For example, payment using a mobile wallet like Paytm does not require one time password or the need to give the debit or credit card detail. A multiple factor authentication may make the usage of PPI cumbersome and hinder seamless transactions, especially for low value transactions. Multiple layer authentications by a mobile wallet to pay for taxi aggregator services that are frequently used may not be customer friendly.

Rule 12 further stipulates that interactions with customers or other service providers can be "appropriately traced", specifically with regard to the access to payment accounts and initiation of payment. The meaning of appropriately traced is unclear. Further, the rule does not specify the purpose or intent behind tracing such details.

Close on the heels of the provision of traceability, Rule 13 provides for the retention of data relating to electronic payment for a specified period, that may be specified by the central government. The nature of data that can be retained and the rational for such retention is not clear, further the duration for retaining information is yet to be specified.

Conclusion

The Draft PPI Rules coincide repeatedly with SPDI Rules and the Master Circular that may cause confusion among the issuers, and instead of promoting stringent protection of data and information, lead to non-compliance with multiple regulations. An alternative approach would be to synchronize the applicable sectoral regulations. For instance, the draft PPI Rules could perhaps instead of requiring a separate security policy, refer to security measures under the SPDI Rules, or, for reporting of cyber incidents, instead of dual reporting to CERT-in and RBI, provide for one reporting entity, either RBI or CERT-in, as the case may be. In addition, the provisions like data retention and grievance redressal needs to be more specific in nature. In summation, the introduction of the Draft PPI Rules is a commendable move in the right direction, but it is far from being sufficient.

Footnotes

1 Master Circular on Policy Guidelines on Issuance and Operation of Pre-paid Payment Instruments in India, dated July 01, 2016

2 Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011

3 See Rule 2(1)(n) of Draft PPI Rules

4 See Rule 3 read with rule 17 of the Draft PPI Rules and Rule 8 of SPDI Rules

5 See Clause 13.1, Master Circular

6 See Rule 8, SPDI Rules

7 See Rule 3, SPDI Rules

8 See Rule 2(1)(e), Draft PPI Rules

9 See Rule 2(1)(f), Draft PPI Rules

10 See Rule 14 of Draft PPI Rules

11 See Rule 15.7, Draft Master Directions on Issuance and Operation of Prepaid Payment Instruments in India dated March 20, 2017

12 See Rule 14(3), Draft PPI Rules

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions