1.1. Prepaid Payment Service Definition
A prepaid payment service, as regulated under these rules, is defined by the holding of monetary value in a prepaid account/electronic record that can be utilised to purchase goods or services from one or more businesses who agree to participate in the prepaid program. The defining features are:
- Monetary value is held on account for use to purchase goods and services for variable amounts as determined and agreed between the payer and payee at the time of purchase of the prepaid service
- Settlement of transactions can be between otherwise unrelated business entities.
Note: for the purposes of this document the terms "account", "electronic record" and "sub-record" are used interchangeably.
"Open loop" payment services enable the purchase of goods and services from a group of unrelated businesses through a prepaid account utilising a payment brand accepted at the participating merchants, i.e. multiple contracting entities, multiple issuers and multiple acquirers. "Open loop" prepaid services require a clearing and settlement services between different businesses. This includes the ability to encash any part of the prepaid balance through a third party network, such as ATM networks.
“Restricted loop” is a subset of an open loop program, in that the merchant acceptance of the program is limited to a specified merchant or a specified network of merchants. Examples of a restricted loop program include in its broadest form, prepaid accounts for the purchase of specific services or goods across a network of merchants (e.g., a prepaid coffee card accepted across a range of unrelated coffee shops, or a mall card accepted only at merchant locations within a specific mall);
"Closed loop" is the purchase of prepaid goods and services related to the goods and services within a defined contracting entity i.e. single contracting entity, single issuer & single/multiple acquirers. In its most restrictive form, close loop programs prepaid accounts for the purchase of services or goods from a specific merchant or merchant chain utilizing the settlement and clearing functions of the prepaid payment service. (e.g., a nationwide retailer offers a prepaid card valid only at its nationwide locations, an independent merchant offers a prepaid card valid only at its single store location but chooses to utilize the prepaid payment service for settlement and clearing functions).
Examples of closed loop prepaid goods and services include:
- Prepaid accounts for the purchase of specific services or goods, such as prepaid fares for public transport or prepaid airtime for mobile telephony services;
- Vouchers (a paper certificate or a series of electronic digits with a non-reloadable amount associated that allows the holder to make payments up to that value at a specific merchant or merchant chain);
- Gift cards for use at a merchant or merchant chain
A prepaid payment instrument is an access device, or token of identity, that can access a pre-funded account balance held by the issuer (refer to 1.2.1 Issuing Program Manager) to which a transaction can be charged. Such an access device could be a payment card, an internet wallet or a payment device utilising mobile technology.
Prepaid instruments encompassed in this regulatory framework include any access device that can provide transactional services against a prepaid balance, including but not limited to:
- Smart/EMV cards (payment cards with an embedded micro-processor);
- Magnetic stripe cards (payment cards with a magnetic stripe);
- Internet wallets (stored value internet accounts)
- Mobile payments
- Contactless payments (Near Field Communications technology)
1.1.1. Acceptance
Prepaid payment services within these regulatory rules can be used across a range of different acceptance models, or prepaid payment service programmes. These are:
Closed loop prepaid Payment Services2. A closed loop prepaid payment service is a prepaid product that is redeemable at a single merchant or at an affiliated group of merchants with the same name, mark, or logo3. The payment device is purchased on a prepaid basis and is honoured upon presentation at such single merchant or affiliated group of merchants. Closed loop prepaid products may or may not be reloadable.
Examples of closed loop prepaid products are:
i. Merchant branded gift cards
ii. Merchant branded store cards
Restricted loop prepaid payment services: A restricted loop prepaid payment service is a prepaid product that is used to acquire goods and services at a limited network of service providers (e.g. fuel stations), either within a clearly limited area or alternatively that can be used to pay for a limited range of goods and services. Restricted loop payment products may or may not be reloadable.
Examples of restricted loop prepaid products are:
Prepaid payment services that are accepted at different merchants located within a clearly defined area such as shopping cards or mall cards. Other examples include University or campus payment devices, Conference cards, Stadium cards, and other cards that are only accepted within a specific closed venue;
Prepaid payment services that are accepted at different merchants, located in different locations but that can only be used to purchase a limited range of goods and services such as Petrol cards, Meal vouchers or Public transport cards4.
C. Open loop prepaid payment services. Open loop prepaid products are payment instruments that are redeemable at all merchants or service providers where the payment brand is accepted without restrictions.
Open loop prepaid products may or may not be reloadable.
2 While closed loop prepaid payment services may be issued under these Rules in the Kingdom of Saudi Arabia, it is not anticipated that they will form the bulk of the programmes on offer
3 Where the prepaid payment service can be used to purchase or access a range of goods or services that are not predetermined at the time the prepaid account is loaded with value (e.g. airtime)
4 For example, transport cards that are accepted by transportation companies (cars, trains and others).
2.1.1. Reloadability
The regulatory principle presented herein governs both reloadable and non-reloadable prepaid payment service products.
a. Non-reloadable prepaid payment service. A prepaid payment service is non-reloadable if it has no mechanism for having additional funds added to the initial balance after the initial issuance.
b. Reloadable prepaid payment service. A prepaid payment service is reloadable if it has the ability of having more funds added after the initial issuance.
It is at the discretion of the prepaid Issuer to determine whether a prepaid product should be reloadable or non-reloadable (noting that re-loadable cards are subject to more rigorous KYC and AML requirements).
Common to both reloadable and non-reloadable prepaid services is that there is a deposit account that holds the available balance on the account until such a time as it is redeemed through spend against the balance or a cash withdrawal, when this service is allowed.