Prepaid Payment Card

• Prepaid cards work on the theme very similar to prepaid mobile phone cards. All you have to do is buy a card, load it with the desired amount and the card is ready to be used. You do not require any bank account to use these cards.
• They’re convenient alternatives to cash and cheques
• They’re issued mainly by banks and Non-Banking Financial Companies (NBFCs) on payment of specified amount and are used for purchasing goods and services from limited outlets.
• These pre-paid cards which are technically known as semi-closed pre-paid instrument
• These instruments do not permit cash withdrawal or redemption by the holder. (i.e. you buy a card, you’ve to use it.)
• No interest is payable by the bank on such balances.
• The maximum value of any prepaid payment instrument  shall not exceed Rs 50,000/-.

Why is it in news?

• With  passing of Payment and Settlement systems, Act 2007, all non-bank entities (NBFCs) currently issuing prepaid payment instruments and those proposing to issue such payment instruments would have to approach Reserve Bank for authorization.
• In 2009, RBI had allowed Pre-Paid card holders to purchase travel tickets, insurance and pay water, electricity and telephone bills.
• Now in June 2012, Reserve Bank has allowed holders of pre-paid payment cards, to deposits school and college fees and pay taxes in addition to buying rail and air tickets within the prescribed limit of Rs 10,000.  (Banks and Companies are allowed to issue such pre-paid cards without fullfilling the KYC : Know your customer requirement.)