As India advances in its digital transformation journey, the payments landscape is rapidly evolving. Over the past decade, driven by smartphones and government initiatives like Digital India, the financial ecosystem has seen significant shifts. One of the most notable changes is the increasing adoption of contactless payments, especially in credit card transactions. Unified Payments Interface (UPI), mobile wallets, and contactless payments are at the forefront of this revolution.

Contactless payment methods such as tapping cards at POS terminals (up to ₹5000), National Common Mobility Cards (NCMC) for transit, and mobile wallets like Google Pay and Apple Pay have made transactions faster and more convenient. Globally, this trend is gaining traction across sectors like retail and public transport, further enhancing the payment experience.

The Benefits of Contactless Payments

1. Speed and Convenience: Faster transaction times improve the shopping experience, especially in busy cities.
2. Enhanced Security: Each transaction uses encrypted, unique codes to reduce fraud risk.
3. Hygiene and Safety: Less physical contact promotes hygiene, particularly important post-pandemic.
4. Mobile Wallet Integration: Contactless cards easily integrate with mobile wallets, adding flexibility to payments.

Adoption in India

In cities like Mumbai, Delhi, and Bengaluru, contactless payments are gaining momentum, with retailers and public transportation adopting NFC-enabled terminals. While rural uptake is slower, government-led digital literacy and financial inclusion initiatives are helping drive adoption in underserved areas.

Safety and Security Perceptions

The Reserve Bank of India (RBI) has implemented guidelines to enhance contactless payment security, such as setting transaction limits and mandating two-factor authentication for higher amounts. Financial institutions and payment providers are actively educating consumers on encryption and tokenization to ensure their financial data is secure. Additionally, advancements like biometric authentication and dynamic CVV codes further bolster the security of these transactions.

The Future Outlook

1. Widespread Adoption: Contactless payments will continue to grow in popularity across both urban and rural areas.
2. Security Innovation: New technologies and stricter regulations will strengthen the safety of these transactions.
3. Integration with Emerging Tech: Contactless payments will merge with technologies like blockchain and IoT, enhancing their functionality.
4. Sustainability: The industry is adopting eco-friendly practices, from digital receipts to green card materials.
5. Credit Line on UPI: An emerging trend is the integration of credit lines with UPI, allowing users to make UPI transactions using a pre-approved credit line without needing a physical card. CARD91’s Credit Line Management System enables banks to manage these credit lines effectively, leading the next wave in digital banking.

Conclusion

Contactless payments are set to shape the future of credit card transactions in India. Their advantages—speed, convenience, and security—are well-suited to the needs of modern consumers. As the digital payments ecosystem evolves, embracing contactless methods will contribute to a safer and more efficient financial landscape, making the future of credit card transactions both seamless and secure.

PPI stands for Prepaid Payment Instrument, PPI is a method that facilitates the purchase of goods and services against the value stored on such instruments. The value stored on such instruments represents the value paid for the holder, by cash, by debit to a bank account, or by credit card.

The prepaid instruments can be issued as smart cards, magnetic stripe cards, internet accounts, online wallets, mobile accounts, mobile wallets, paper vouchers, and any such instruments used to access the prepaid amount.

Some of the common examples of PPIs include Paytm and Gpay, gift cards, and debit or credit cards. In today’s piece, we take a look at three types of prepaid payment instruments.

• Closed System PPIs
• Semi-Close System PPIs
• Open system PPIs

Closed System PPIs:

These are PPIs issued by an entity for facilitating the purchase of goods and services from that entity only. No cash withdrawals are permitted. These instruments cannot be used for payment or settlement for third-party services. The issuance and operation of such instruments are not classified as a payment system and do not require approval/authorization from the RBI.

Semi-Closed PPIs: 

These are PPIs issued by banks (approved by RBI) and non-banks (authorized by RBI) for purchase of goods and services, including financial services, remittance facilities, etc., for use 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 also permit cash withdrawal, irrespective of whether they are issued by banks or non-banks.

Open System PPIs: 

These are PPIs issued by banks (approved by RBI) for use at any merchant for the purchase of goods and services, including financial services, remittance facilities, etc. Cash withdrawal at ATMs / Points of Sale (PoS) terminals / Business Correspondents (BCs) is also allowed through these PPIs.

How can a business benefit from PPIs?

Prepaid payment instruments in the form of mobile wallets, multipurpose, multicurrency, prepaid cards can accelerate sales, customer loyalty, and profitability. You can earn significant revenue for every transaction made through mobile wallet-enabled prepaid cards you issue.

Businesses must leverage PPIs to tap into the gigantic 760 million smartphone users base in India, who will most likely shop online and pay using mobile apps and wallets.

Using prepaid instruments, you can enable bank-like domestic and cross-border payments, but with greater efficiency, flexibility and security. Armed with the ground-breaking PPI reforms announced by the Reserve Bank of India (RBI), every business in India must ride the PPI wave to reap the utmost benefits.

The following are significant measures announced in the 2021 RBI monetary policy review, applicable from March 31, 2022.

1.  PPIs can offer Real-Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) facilities to their users.
2. Interoperability of full KYC PPIs is mandatory.
3. The maximum balance of mobile wallets doubled to INR 2 lakhs from INR 1 lakh.
4. Cash withdrawals enabled for full-KYC PPIs of non-bank PPI issuers (in addition to bank issuers)

These reforms have the potential to level the playing field between banks and non-banks, incentivize full KYC PPIs, and drive greater financial inclusion. Businesses that accept payments and remittances through prepaid payment instruments will experience higher customer acquisition, retention, and loyalty, increased customer lifetime value, and long-term profitability.

Who can issue PPIs?

The following entities can issue PPIs post authorization/approval of RBI.

Non- Banking Entities

• They must be incorporated in India
• Minimum paid-up capital — more than INR 5 crores
• Minimum positive net worth — INR 1 crore at all times

NBFCs

• Maintain an escrow account with any scheduled commercial bank in India

Banks

• Compliant with PPI eligibility criteria established by the RBI

RBI’s new addition to PPI-Small PPIs can have cash upto ₹10,000 loaded per month

The Reserve Bank of India on 27/Aug/2021 issued Master Directions on Prepaid Payment Instruments (PPIs) with the fresh classification of the instruments.

“Keeping in view the recent updates to PPI guidelines, it has been decided to issue the Master Directions afresh,” the RBI said.

No entity can set up and operate payment systems for PPIs without prior approval or authorization of the RBI, it stated.

The master directions classify PPIs into two categories – small PPIs and full KYC PPIs. They were earlier classified as closed systems, semi-closed systems, and open system PPIs.

“Small PPIs: Issued by banks and non-banks after obtaining minimum details of the PPI holder. They shall be used only for the purchase of goods and services. Funds transfer or cash withdrawal from such PPIs shall not be permitted,” the RBI said.

PPI Classification

Small PPIs can have cash up to ₹10,000 loaded per month, not exceeding ₹1.2 lakh in a year.

Full-KYC PPIs will be issued by banks and non-banks after completing the Know Your Customer (KYC) of the PPI holder.

“These PPIs shall be used for the purchase of goods and services, funds transfer or cash withdrawal,” it further said, adding that the amount outstanding should not exceed ₹2 lakhs at any point in time.

The RBI has also said that the PPI issuer shall have a board-approved policy for PPI interoperability.

Where PPIs are issued in the form of wallets, interoperability across PPIs should be enabled through UPI. Where PPIs are issued in the form of cards (physical or virtual), the cards should be affiliated to the authorized card networks, it said.

PPI for mass transit systems should remain exempted from interoperability, while Gift PPI issuers (both banks and non-banks) have the option to offer interoperability.

“Interoperability shall be mandatory on the acceptance side as well. QR codes in all modes shall be interoperable by March 31, 2022,” it further said.

The RBI has also said the PPI issuer shall put in place a formal, publicly disclosed customer grievance redressal framework, including designating a nodal officer to handle customer complaints or grievances, the escalation matrix, and turn-around-times for complaint resolution.

What is open banking? 

Open banking is nothing but a payment system that works on an application programming interface (API).  Let’s understand it better with the help of an example.

In India, how long does it take to open a new bank account? How many times do you need to verify your documents? If you want to apply for a loan, how much time does it take to get it approved?

I am sure you all can relate to how much effort it takes to complete each task mentioned above. If you talk about applying for a loan, let alone from a different financial organization, you need your bank account details, a good credit score, and a valid KYC document to even be approved.

With the introduction of open banking in India, everything will be possible within a few minutes and with a few clicks.

Open Banking and its status in India

Open Banking in India is still in a nascent stage and awaits a mass adoption wave. The reason behind this could be that the traditional Indian banking systems are extremely manual and system-based. Currently, even the adoption of net banking is not ubiquitous. The system focuses more on security and privacy, thereby compromising its efficiency. However, open banking has lots to offer when compared to traditional banking systems.

Is India ready for open banking? Prima facie the thought seems like a no-brainer. It is possible, as today we make payments using our phones for everything, be it an electricity bill or grocery bills, you name it! And you are doing it via phone.  A final noteworthy feature of India’s approach to open banking is that the perimeter of data subjects is broader than in most other jurisdictions.

Many open banking approaches are focused on consumer data and access to financial services. But India’s approach extends this to include small businesses also, who can be a part of this payment ecosystem and add one more layer to the data stack and have the access to improved financial services and their offerings

The progression of India with open banking principles can only be achieved through interoperability and data sharing in the financial sector. If you bring banks and non-banks together under the same infrastructure or common ecosystem, this architecture will facilitate financial inclusion, as can be seen by the increase in a high volume of low-value payment transactions, which further leads to digital transformation and development.

Open banking adoption accelerates or not?

In my opinion, the banking system has been transforming with each passing day. From an individual standing in long queues to just open an account in one tap, we have evolved. Whether it is physical banking or digital banking, individuals choose convenience and variety. 

There are many successful open banking stories. M-Pesa in Kenya, Alipay in China, and Paytm in India- their adoption indicates that there had been a certain digital drift that led to the success of these platforms. This indicates that traditional banks should change the way they have traditionally approached customers and should adapt to the new world of open banking. Digital banking or open banking systems can give them access to innovative ways of implementing digital technologies within the system, which in the future will help them to provide personalized customer services which will help them in retaining their market share and reduce capital on research and development of services.

How secure or safe is my data?

Every new technology in the market comes with new risks and uncertainties. However, with open banking platforms, they have the potential to rewrite the relations between a bank and its customers. When we talk about a consumer, a consumer is someone who prefers convenience packaged with security and safety. So, open banking will enhance or enable the management of money more securely, more convenient, and customer-focused.

At last, I would like to conclude that with every step in the future or tomorrow something or the other is changing. Change is inevitable, and it comes with a mixed bag of offerings. Here, in the case of open banking in India, the future is going to be collaborative and interconnected.