Overview of Prepaid Wallet License
The term PPIs or Prepaid Payment Instruments means the Instruments that store high monetary value in them, and one can purchase goods and services by transferring the amount stored. The pecuniary value stored in the Prepaid Payment Instruments is the amount that the holder actually needs to pay, either in the form of cash, credit card, or by debit to the bank account. Further, it shall be noted that to start a Prepaid Payment Instrument, one needs to obtain Prepaid Wallet License from RBI. The same is also known as Payment Wallet License.
In recent years, Prepaid Payment Instruments have become really popular and a convenient alternative to cash transactions. The other name for Payment Instrument is E-wallets. One of the most prominent examples of Prepaid Payment Instruments is Paytm. Some of the major benefits of the Payment Wallet License are that it facilitates transparency, is convenient to use, and promotes accountability.
Further, it shall be noted that nowadays, the Reserve Bank of India is taking several initiatives to promote fast track money transfer. The main function of a Prepaid Wallet License is to permit its users to buy items or to carry out transactions by using the digital platform.
However, it shall be considered that a company or business entity that is willing to obtain a Prepaid Wallet License requires to comply with the rules, regulations, and guidelines prescribed by the Apex Bank.
Moreover, the various forms of Payment Wallet License are as follows:
- Closed system payment instruments;
- Semi-Closed system payment instruments;
- Semi-Open system payment instruments;
- Open system payment instruments;
- Mobile Prepaid Instruments;
Prepaid Wallet License
Benefits of Prepaid Wallet License
The benefits of the Prepaid Wallet License can be summarised as follows:
- It is one of the most Convenient and Safe ways of making Monetary Transactions;
- Payment Wallet Instruments are Time Saving in nature as through them one can make the payment of electricity bills, mobile charges, telephone bills from anywhere and at any time;
- Provides Ease of making a transaction from any place;
- Facilitates Transparency and Accountability to the user of E-wallet;
- These application does not require any extra cost or activation fees;
- Offers Reward, Cashbacks, and Incentives to its users;
Minimum Requirements of Payment Wallet License
The minimum requirements of Payment Wallet License are as follows:
- Schedule Banks and NBFCs
It shall be noted that no minimum capital requirement has been specified by the RBI for Schedule Banks or NBFCs, who want to obtain prepaid wallet license.
However, prior to the issuance of the license, all the prepaid instruments need to acquire approval as well from the Reserve Bank of India.
- Capital Requirement
All non-bank entities seeking authorisation from RBI under the PSS Act shall have a minimum positive net-worth of Rs. 5 crore.
Thereafter, by the end of the third financial year from the date of receiving final authorisation, the entity shall achieve a minimum positive net-worth of Rs. 15 crore which shall be maintained at all times.
- Authorised Entities of FEMA
It shall be noted that all the entities that have authorised under the Foreign Exchange and Management Act 1999 to grant foreign exchange prepaid wallet are relieved from the requirements of Minimum Capital. However, the entities can use these types of payment instruments only for a limited permitted current account.
Different Types of Payment Wallet License
The different types of Payment Wallet License are as follows:
- Closed Wallet or Closed Payment Wallet Instrument
Closed Wallet or Closed Payment Wallet Instruments are those which are issued by a company to its users exclusively for the objective of buying goods of that particular company. Further, this kind of Prepaid Payment Instrument is used for the purchase of goods and services of only that company which has granted it.
For Example: Reliance Supermarkets, etc.
- Semi Closed Wallet or Semi Closed Payment Wallet License
This particular category of Prepaid Payment Instruments in which a holder is allowed to purchase good and services only from a particular group of sellers who have joined hand for this specific objective. Further, the facilities of cash redemption & withdrawal are not offered to the holders of such instruments.
For Example: Mobiwik and Paytm.
- Semi Open Wallet or Semi Open Payment Wallet License
This type of payment instrument can be used by those holders who are purchasing goods and services at those seller locations that accept digital cards.
However, it shall be noted that in these instruments, the facilities of cash withdrawal and redemption is not allowed to the holder.
- Open Wallet
The term Open Wallet means those prepaid payment instruments that are used to purchase goods & services anywhere. Also, the holders of these wallets have the permission of withdrawing cash from Automated Teller Machines (ATMs).
- Mobile Prepaid Instruments:
The value of prepaid talk time issued by mobile service providers can also be used for purchase of 'value addedservice' from the mobile service provider or 3rd party service providers.
Prerequisites for Obtaining Prepaid Wallet License
RBI has set clear-cut criteria for permitting the entities to set up prepaid wallets:
- Banks and Non-Bank Finance Companies (NBFC), who comply with the eligibility criteria, would be permitted to issue all categories of prepaid payment instruments.
- Only banks provide Mobile Banking Transactions are permitted to launch mobile based prepaid payment instruments (mobile wallets & mobile accounts). Other entities are permitted to issue only closed system prepaid payment instruments and semi-closed system prepaid payment instruments.
- Mobile Prepaid value: Mobile Service Providers are permitted to issue mobile prepaid value. In addition to talk-value the use of such prepaid value as a payment instrument shall be restricted to the purchase of only such value-added digital contents/services which are for use on the mobile phones. The use of mobile prepaid value for purchase of other goods and services is not permitted
All non-bank entities seeking authorisation from RBI under the PSS Act shall have a minimum positive net-worth of INR 5 crore. Thereafter, by the end of the third financial year from the date of receiving final authorisation, the entity shall achieve a minimum positive net-worth of INR 15 crore which shall be maintained at all times.
Basic Requirements for obtaining Payment Wallet License
The basic requirements for obtaining a Payment Wallet License are as follows:
a) The Net Worth of the Company shall comprise of the following items:
- Paid-up Equity Capital;
- Free Reserves;
- Preference Shares;
- Capital Reserves representing Surplus;
- Share Premium Account;
b) All the Banks and NBFCs require to obtain prior approval and sanction from the Supervisory Department of the RBI and NBFCs;
c) Any existing business entity that has permission to issue the prepaid instrument and has acquired the license from the apex bank as well based on the previous capital requirements require to increase the amount of net worth. The same will be done based on guidelines on or before 30.09.2020;
d) Companies need to mandatorily have registration under the provisions of the Companies Act 2013, prior to acquiring of license from RBI.
e) The object clause of the MOA (Memorandum of Association) must allow the company to undertake the operations of the issuer of payment wallet instruments;
Documents Required for obtaining Prepaid Wallet License
The documents required for obtaining a Prepaid Wallet License are as follows:
- Applicant’s Name;
- Address Proof of the Registered Office;
- Certificate of Incorporation (COI);
- Objects of the Company;
- Information concerning Management;
- Details regarding the Statutory Auditors;
- Audited Balance Sheet;
- Name of the Bankers to the said Company;
- Address of the Bankers to the said Company;
Process for Obtaining Prepaid Wallet License in India
Making an Application in Form A for approval as per under Regulation 3(2) of the Payment and Settlement System Regulations, 2008, with the prescribed government fee and all the documents and details to the Reserve Bank of India to obtain the PPI License.
The RBI shall initiate the Screening process to ensure prima facie eligibility of the applicants.
RBI shall also apply checks, inter-alia, on certain essential aspects like customer service and efficiency, technical and other related requirements, safety, and security aspects.
After the RBI is satisfied regarding the Applicant’s eligibility criteria after checking its fit & proper status, it issues an ‘in-principle approval. The validity of the issued in-principal approval shall be six months from the date of granting such approval.
The Company needs to submit a satisfactory Audit Report to RBI, within six months. The company has to submit the System Audit Report (SAR), otherwise, the in-principal approval shall lapse automatically. The Company can receive a one-time extension of six months by making an appeal in writing in advance with all the valid reasons.
After considering all the particulars furnished by entities, the Company will be granted final approval. The company has to commence business within six months from the grant of Certificate of Authorization.
Documents required for Payment Wallet License:
- Name of the Applicant.
- Address Proof of Registered Office.
- Certificate of Incorporation
- A Complete Report of the principal business of the entity.
- Managerial Details.
- Statutory Auditor of the Company.
- The audited Balance sheet of the financial year.
- Name and Address of Bankers of the Company.
- Expected profits to Indian Financial System.
- Proposed Capital Amount.
- Sources of Funds.
- Any other Information required by RBI.
Validity of Prepaid Wallet License
- All PPIs issued in the country shall have a minimum validity period of 1 year from the date of last loading / reloading in the PPI. PPI issuers are free to issue PPIs with a longer validity.
- In case, the PPI is issued in the form of card (with validity period mentioned on the card), then the customer shall have the option to seek replacement of the card.
- The outstanding balances in any payment instrument shall not be terminated immediately at the expiration, of the instrument. The value may be depleted at the rate of 10% of the outstanding value per month. The holders may also be adequately cautioned in advance as regards the expiry of the validity of the payment instrument.
Additional Approvals Needed by the Business Entities
If a non-banking financial company has been issued the Certificate of Authorization (COA) for issuing PPIs (Prepaid Payment Instruments, then, in that case, it shall be needed to take the prior written approval of the Apex Bank in the circumstances as follows:
- If in case there has been any acquisition of control and shareholding of the entity or a company takeover, whether the same has consequenced in the change of management or not;
- If in case there is a need to change the management of the entity, then, in that case, the result of the same will not be more than the 30 percent change in the directors of the entity, exclusive of the Independent Directors. However, it shall be noted that there is no need to have any prior approval of the RBI for those directors who have been re-elected on the basis of retirement by rotation.
Frequently Asked Questions
Prepaid payment instruments are methods that facilitate purchase of goods and services against the value stored on such instruments. The value stored on such instruments represents the value paid for by the holder, by cash, by debit to a bank account, or by credit card.
A closed wallet is a mobile wallet or an e-Wallet which is designed for making full or part payment for the services directly provided by the wallet issuer. A Closed wallet cannot be used for making payments to any third party service providers or for money transfer.
Semi-closed wallets which have a specific contract with the issuer to accept the payment instruments but do not permit cash withdrawal or redemption by the holder & which enables the procuring of goods & services which consist of financial services at a group of clearly recognized merchant locations/ establishments.
There are two types of enterprises which can start an e-wallet - Banks and Non-Banking Financial Companies (NBFCs). Hence, the first step towards creating an e-wallet is to get your company registered as an NBFC with the Reserve Bank of India (RBI).
Open System PPIs can be issued only by banks, who have RBI approval to issue such PPIs. There is only one type of open system PPI i.e. PPI upto ₹1,00,000/- after completing KYC of the PPI holder (KYC compliant PPI).
A wallet is a small software program used for online purchase transactions. Many payment solution companies, such as CyberCase, offer free Wallet software that allows several methods of payment to be defined within the wallet (for example, several different credit cards).
There are five types of digital storage available for your use: Online Wallet: Online wallets run on the cloud so they can be accessed from multiple devices with an Internet connection. Online wallets are practical and convenient too.
Pre-paid Payment Instruments (PPIs) are defined in the RBI Guidelines issued under the Payment and Settlements Systems Act, 2005 as payment instruments that facilitate purchase of goods and services, including funds transfer, against the value stored on such instruments. PPIs are one component of the Payment System.
A mobile wallet is a virtual wallet that stores payment card information on a mobile device. Mobile wallets are a convenient way for a user to make in-store payments and can be used at merchants listed with the mobile wallet service provider.
PayPal is another cheap payment gateway. In addition, it is a secure payment platform, so you have to enter your bank details in each online store where you want to buy.
- Name of the applicant
- Constitution of the applicant
- Address proof of registered office
- Certificate of Incorporation
- Main business of the company
- Management Information
- Statutory auditor of Company
- Audited balance sheet
- Name and address of bankers of Company
- Any other documents as may be required
A digital wallet also known as "e-Wallet" refers to an electronic device or online service that allows an individual to make electronic transactions. This can include purchasing items on-line with a computer or using a smartphone to purchase something at a store.