Gift Card Purchase Regulation Updates

The National Payments Corporation of India (NPCI) has initiated a new approach to gift card purchases by implementing a dedicated merchant category code, requiring a separation from PPI wallet top-ups. This decision mandates that acquirers and payment service providers (PSPs) must reclassify their merchant categories accordingly. Effective by May 31, 2026, the NPCI has instructed all UPI and RuPay member banks and PSPs to classify gift card and voucher purchases under Merchant Category Code MCC 7016. A startup called Superb accessed these directives, highlighting a persistent classification issue that has complicated transaction monitoring and regulatory reporting throughout the ecosystem. Previously, UPI gift card and voucher purchases were categorised under MCC 6540, which is also associated with loading prepaid payment instrument (PPI) wallets. The NPCI notes that this overlapping classification has hindered the ability to distinguish and audit both transaction types effectively.

What Changes Will Occur

Acquiring banks and PSPs will need to apply MCC 7016 to all merchants that provide gift cards or vouchers, encompassing both existing and newly onboarded merchants. Compliance with this regulation must be achieved by May 31, 2026. The new code will be placed within the ‘Non-Industry / Regular Program’ category of MCC classification.

Operational Guidelines

The NPCI has provided an annexure detailing specific controls that acquirers must implement. For instance, payment requests initiated by merchants will not be accepted under this merchant category. Additionally, there are defined transaction limits: each individual gift card or voucher purchase via UPI is capped at Rs 10,000, while a user’s cumulative spending each month cannot exceed Rs 25,000. Platforms that permit the sale of both products and gift cards must ensure that these transactions are not bundled; each purchase must be processed as a distinct UPI transaction. These guidelines also extend to aggregators, with acquirers held responsible for ensuring compliance and appropriate categorisation at all levels of the merchant hierarchy.

Importance of the Changes

The reclassification primarily aims at enhancing hygiene and oversight within the payment ecosystem. Regulators, along with NPCI’s analytical systems, have historically faced challenges in accurately tracking gift card transactions through UPI, as distinguishing them from wallet top-ups has proven difficult in transaction data. Clear MCC separation facilitates better fraud detection, improved velocity tracking, and clearer regulatory reporting. For fintech platforms and major e-commerce providers that frequently sell gift cards as a primary product line, this change necessitates coordination with their acquiring bank or PSP to ensure that existing merchant IDs are properly re-tagged before the impending deadline. If compliance is not met, the responsibility for any fraudulent transactions will fall directly onto the acquirer. With less than four weeks remaining until the May 31 deadline, swift action on bulk merchant re-classification projects is anticipated from acquirers.