The recent notification amending the Master Direction on Prepaid Payment Instruments (PPI-MD)1 by the Reserve Bank of India (RBI) dated February 10, 20232 , permits foreign nationals and Non-Resident Indians (NRIs) visiting India to use prepaid payment instruments (PPIs) for making payments. Foreign nationals and NRIs from G-20 countries3 shall at the first instance be allowed access to the Unified Payments Interface (UPI) at select international airports for their merchant payments (P2M) while they are in the country. This move is aimed at providing greater convenience to Foreign Nationals and NRIs, who may not have access to traditional banking facilities.

The G20 or Group of 20 is an intergovernmental forum of the world’s major developed and developing economies. The G20 comprises of 19 countries (Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Türkiye, United Kingdom and United States) and the European Union4 whose nationals along with NRIs visiting India can use PPIs such as prepaid cards, mobile wallets and paper vouchers to make payments. The notification also indicates that the PPIs are to be denominated in Indian Rupees and can be used solely for transactions within India.

The RBI clarified that the PPIs should be issued only by entities authorized by it, such as banks and non-banking finance companies (NBFCs). Such PPIs can also be issued in co-branding arrangement with entities authorised to deal in Foreign Exchange under the Foreign Exchange Management Act (FEMA).5

The notification with the introduction of section 10.3 sets out the manner in which PPIs shall be managed by both the banks and NBFCs as well as utilized by foreign nationals and NRIs. In order for banks and NBFCs to allow use of the PPIs, foreign nationals and NRIs are required to meet know-your-customer norms as are applicable to Full KYC PPIs. Full-KYC PPIs are issued by banks and non-banks after completing Know Your Customer (KYC) requirements of the PPI holder. Full KYC PPIs are reloadable in nature; with no limits prescribed for total credits or debits during a month however, the amount outstanding on such Full KYC PPIs should not exceed `2,00,000/- at any point of time6 ;

The PPIs shall be issued by banks or NBFCs after physical verification of the passport and visa of the foreign national or NRI at the point of issuance. The PPI issuers shall be required to ensure that the information obtained by them is recorded and maintained; The PPIs can be issued in the form of wallets linked to UPI and can be used for merchant payments only. Foreign Nationals and NRIs shall load or reload the wallets through receipt of foreign exchange in cash or through any payment instrument and the conversion to Indian Rupee shall be carried out only by entities authorised to deal in foreign exchange under FEMA;

Sarvatra Technologies Ltd., a payments technology provider in collaboration with ICICI Bank, IDFC First Bank and Pine Labs Private Limited and Transcorp International Limited an NBFC shall be the first to be permitted to issue UPI linked wallets to foreign nationals and NRIs.7 Transcorp UPI One World wallets will initially be offered via the Transcorp-Cheq app to all G20 nationals and NRIs, where a KYC based process followed by mobile registration will allow users to load money via international currency/cards and pay seamlessly at any QR code in India using the ‘@ trans’ handle which operates on the interoperable UPI 2.0 rails8 .

Similarly, issuers upon completion of the full KYC of a customer, shall provide a UPI linked wallet, and the user would need to download the app of the entity to carry out the transactions. On departure of the foreign national or NRI, the balance can be encashed at the airport counters in accordance with section 139 of the PPI-MD whereby the unutilised balances in such PPIs can be encashed in foreign currency or transferred ‘back to source’10.

The RBI also noted that the payment instruments should be used for transactions up to a certain limit, which could be determined by the issuer as well as in accordance with antimoney laundering laws as applicable. The RBI’s move is expected to provide a major boost to tourism in India and enhance the digital payments sector in the country. This could help in the promotion of a cashless economy in the country, which is one of the primary goals of the government.

While PPIs are a convenient and a relatively secure way to make payments, send money, and store money, there is a risk attached to issuing them to foreign nationals or NRIs. One of the risks associated with issuing PPIs to foreign nationals and NRIs is the possibility of money laundering. As PPIs are often anonymous, they may be used to move illicit funds across borders. In addition, foreign nationals and NRIs may not be familiar with the applicability of Indian laws and regulations governing the use of PPIs and the repercussions of any illegal or fraudulent activities would need to be clarified where the act is perpetrated by such individuals. Further risk associated with issuing PPIs to foreign nationals and NRIs is the potential for fraud. Even with adequate security measures put in place to protect the PPI user’s funds there is possibility of fraud and foreign nationals and NRIs may inadvertently fall victim to fraudulent or illegal activity on account of a third party. Additionally, foreign nationals and NRIs may find it difficult to seek recourse if they are a victim of such fraudulent activities. Finally, issuing PPIs to foreign nationals and NRIs can create a reputational risk for the issuer even where all KYC protocols have been instituted by the issuer where it is found to have issued PPIs to foreign nationals and NRIs who are involved in money laundering or fraud, it could damage the issuer’s reputation and lead to financial losses. To mitigate the risks associated with issuing PPIs to foreign nationals and NRIs, issuers would need to take precautionary steps and ensure that all PPIs issued to foreign nationals and NRIs stringently adhere to knowyour-customer (KYC) standards. The user should be properly vetted through background checks as well as on other government bases to ensure that the individual is not involved in any illegal or fraudulent activities. This includes verifying the identity of the customer, conducting background checks, and ensuring that the customer is not on any government watch lists. Issuers should ensure that they have adequate fraud prevention measures in place. This includes implementing strong authentication protocols, monitoring transactions for suspicious activity, and putting in place a dispute resolution process for customers who are victims of fraud. Finally, issuers would need to have a clear policy regarding the use of PPIs by foreign nationals and NRIs. This should include details on acceptable uses of the PPI, limits on the amount of money that can be stored on the PPI, and other restrictions that may be necessary to protect the issuer from financial losses as well as protect the interest of the issuer.

Overall, issuing PPIs to foreign nationals and NRIs can be risky, but with the right precautions in place, issuers can protect themselves and their customers from the risks associated with these instruments. One can foresee more cashless transaction, transparency and advancements in the field of digital payments at an international level.