finpeel Answers · India · updated 2026-08-14
A closed-system instrument is stored value issued for purchasing goods or services only from the issuing entity itself and does not permit payment or settlement for third-party services. RBI states that such instruments are not classified as payment systems requiring RBI approval or authorisation.
This exception is narrow and depends on where the value can be spent. Once the instrument supports third-party merchants, broader transfers or payment-system functionality, the regulated PPI analysis changes.
Store credit and loyalty balances should therefore be tested against the closed-system conditions rather than automatically labelled a PPI.
Regulator: Reserve Bank of India (RBI)
Primary sources: RBI — Master Direction on Prepaid Payment Instruments · RBI — FAQs on Prepaid Payment Instruments
Directional — not legal advice. Verify with the regulator before committing.
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