This research article has been commissioned by Techsembly, a Sabre company, from Agama Law Associates. Please note this information provided is for informational purposes only and is not intended to constitute legal advice. Please reach out to Agama Law Associates or your legal counsel, other experts and consultants for how laws and regulations may apply to your organization. 

Gift cards play a pivotal role in the hospitality industry, offering significant value and revenue-making potential. These versatile instruments provide guests with the opportunity to experience the services and amenities of a hotel, generating revenue even before they set foot on the property. By offering gift cards, hotels can tap into various market segments, including corporate clients, individuals seeking special occasions, and tourists planning future visits. 

India is recognized as one of the world’s largest gift-giving markets, with its vibrant celebrations of joyous festivals throughout the year, driving billions of rupees in gift spending. In recent times, there has been a notable shift towards gift cards from luxury brands emerging as the preferred gifting option. This gifting trend is attributed to the increasing adoption of e-commerce and digital gifting, coupled with the demand for corporate gifting to incentivize employees and delight clients.  

Interestingly, the popularity of gift cards is not confined to metropolitan areas alone; it is steadily gaining traction in Tier 2 and 3 cities as well. Looking ahead, the gift card industry in India is projected to reach an impressive US$7.56 billion by 2023, with an estimated compound annual growth rate (CAGR) of 15% between 2023 and 2027, potentially accumulating to a remarkable US$13.23 billion by 2027. Such forecasted robust growth indicates the significant role gift cards are expected to play in India’s gifting culture and their rising prominence in the country’s economic landscape. 

However, navigating the legal landscape surrounding gift cards may pose several challenges, particularly due to value limitations that hinder hospitality players from fully harnessing the potential of gift cards. In this article, we will describe the specific gift card laws applicable in India and explore innovative solutions that the hospitality industry may adopt to overcome these regulatory constraints.  

There is a growing popularity of digital gifting and experience gifts, widely utilized by international hotel groups worldwide, which may offer a promising avenue for hotels in India to maximize the benefits of gift cards. By understanding these legal nuances and embracing modern gifting trends, the hospitality sector can unlock new opportunities and enhance customer satisfaction in the ever-evolving landscape of gifting and hospitality experiences. 

We have invited lawyers from Agama Law Associates to discuss in this article the legal implications of handling gift cards in India, and the steps businesses may need to take to stay within the boundaries of the law. It is important to clarify that the authors of this article are not acting as legal advisors, and the background information presented here should not be considered as legal advice. Each business should seek counsel from their own team of lawyers, accountants, and other subject matter experts to tailor their gift card program according to the specific legal requirements and nuances of their operations. We present this article for informational purposes only. 

Definition of a Gift Card

India Gift Card Rules

In India, gift cards are officially recognized as Prepaid Instruments (PPIs) and are subject to regulation by the Reserve Bank of India (RBI) through its payments and settlement systems division. The classification of PPIs depends on whether cash withdrawals are allowed, and any gift card that permits cash withdrawals is subject to rigorous RBI regulations.

It is important to note that both banks and non-bank entities, including those in the hospitality industry, can issue most PPIs. For the hospitality sector, gift cards would be considered as a form of closed-loop PPI. They can be purchased by one person and redeemed by another, specifically for the redemption of goods or services within the purchased property and cannot be withdrawn for cash.

Gift cards can also be purchased using a credit or debit card outside of India, convenient for international customers that may want to buy a gift card for their friends and family in India.‍ Typically, the maximum value of gift card PPIs is limited to INR 10,000 (USD 120). However, there is no maximum limit on the number of quantities that can be purchased in a single day.

On the other hand, closed-loop PPIs have a higher maximum value, which can go up to INR 200,000 (~USD 2400). With that in mind, closed-loop PPIs potentially present a more favorable option for businesses seeking to offer gifting solutions with higher amounts, enabling them to capitalize on larger revenue opportunities.

However, gift cards are not operable as closed-loop for hospitality groups with different legal entities even under the same brand. It is therefore advisable to list the specific properties where buyers can access and redeem, rather than assuming that any hotel within the group can be redeemed for.

Again, it is crucial to emphasize that closed-loop PPIs are non-refundable and non-cashable in order to be eligible and compliant with the law.‍

Definition of Experience Vouchers‍ 

To maximize the benefits of gift card sales, one effective strategy is the issuance of Experience Vouchers. In India, instruments offering purely gift or experience-based rewards are not subject to regulation. These Experience Vouchers would fall under closed-loop PPIs, which have limited application and would be exempt from Prepaid Instrument (PPI) restrictions according to RBI regulations 

The key characteristic of Experience Vouchers is their inherent non-fungibility, as they cannot be redeemed for other goods or services, unlike cash or open-loop prepaid funds. Additionally, the value of such Experience Vouchers can exceed the typical INR 10,000 (~USD 120) limit, allowing for more substantial gifting opportunities. 

For example, if a hotel were to sell a Hotel Stay Package valued at INR 200,000 (~USD 2400), this would be considered an Experience. Similar to a gift card, this type of PPI would also have a minimum validity period of one year from the date of purchase. However, if the PPI expires, the experience associated with it would become unredeemable, and the value would be forfeited.  

In regards to gift card breakage, as closed-loop PPIs lack specific regulations on this matter, the hotel can therefore dictate its expiry terms and conditions in regards to unspent value. This quality could significantly reduce the risk of money laundering operations and potential violations of foreign exchange laws, making them a compelling gifting option. 

Regulations Governing Gift Card 

India Gift Card Rules

 

‍The RBI’s Payment and Settlement Systems Department introduced the Master Directions on Pre-paid Instruments in 2021 (“MD-PPI”), which serves as the governing framework for the use of gift cards or PPIs in India.  

Under these regulations, the RBI acknowledges that gift cards can be issued either digitally, using platforms like UPI, or in physical form, such as smart or regular cards pre-loaded with a specific value.  

The PPI regulations impact products such as e-wallets, gift cards and vouchers, money transfer wallets, meal vouchers, metro/travel rail cards, among others – but prohibits any form of paper PPIs or paper-based rewards, such as paper vouchers. 

Consumer Protection Measures 

There should be transparent communication of Prepaid Instrument (PPI) features to PPI holders through SMS, email, or other means prior to issuance. PPI issuers have the obligation to disclose all essential terms and conditions in clear and simple language (preferably in English, Hindi, and the local language) while issuing gift cards. Additionally, Frequently Asked Questions (FAQs) related to PPIs must be prominently displayed on the PPI issuer’s website or application. 

Furthermore, it is essential for PPI issuers to establish a formal, publicly disclosed customer grievance redressal framework, designed to ensure efficient handling of complaints. Prompt action to resolve customer complaints is expected, ideally within 48 hours, with an endeavor to resolve them no later than 30 days from the receipt of the complaint.  

Additionally, PPI issuers must display a comprehensive list of their authorized or designated agents. Through our in-house Concierge (Guest) Support, a team of customer service agents is readily available to cater to global requests, efficiently addressing all buyers and guests most important concerns and needs. 

How to safeguard your gift card program 

Compliance with gift card regulations and maintaining strict legal adherence is of utmost importance. In such circumstances, it is crucial to be vigilant and avoid potential risks and pitfalls, particularly related to safeguarding against money laundering activities. To address these challenges effectively, a robust risk management system is essential for PPI issuers, aimed at countering fraud and designed to ensure customer protection. 

PPI issuers must establish a comprehensive information and data security infrastructure. This includes implementing systems and protocols for the prevention and detection of fraud to safeguard the integrity of their payment systems.  

We place a strong emphasis on security, as evidenced by our ISO 27001 certification, serving as a testament to our dedication to efficiently managing sensitive information and mitigating security risks related to our products and services. 

Key Takeaways 

In light of the restrictions, the market potential for gift cards remains substantial. To navigate the regulatory limits effectively, it is advisable to refrain from using the term ‘gift card,’ as that may trigger the INR 10,000 (USD 120) limit and all the regulations that come along with gift PPIs.  

Instead, a prudent approach would be to create a unique branded name for your experience gift card program, such as “LuxeHotel Plus” or “Gift of Experience” which then would not fall under the PPI classification. This strategic move would allow hotels to offer electronic experience gift vouchers without being bound by the monetary limit or even create giftable Experiences with higher values. 

Additionally, for higher value ‘gift cards’ up to INR 200,000 (~USD 2400), it is recommended to specify particular hotel properties where the gift card can be redeemed, in compliance with closed-loop regulations. By adopting these methods, hospitality players can expect to operate without being subjected to RBI regulations related to monetary gift cards. 

This guide serves as a reminder that it is not legal advice and should not be considered a replacement for seeking advice from your own subject matter experts, including legal counsel, accounting firm, and other consultants.  

To ensure compliance with the RBI (Reserve Bank of India), we recommend that you seek guidance from the appropriate advisors within your domain for your property. Implementing any required new procedures promptly is essential to maintain regulatory adherence. 

We are a trusted partner of leading hotel groups worldwide helping hoteliers develop online retailing and gift card solutions to generate revenue growth beyond traditional room bookings. For more information on how to set up your hotel’s gift card program with experience vouchers and an opportunity to tap into the multi-billion dollar gifting market in India, contact our Sabre team.