The Reserve Bank of India has shifted its focus towards promoting cashless transactions since the demonetisation move. To facilitate this transition, it introduced the Prepaid Wallet Licence or Prepaid Payment Instruments (PPI) in India.
To operate under this system, entities must obtain the Prepaid payment wallet Licence by complying with the regulations outlined in the Payment and Settlement System Regulations, 2008, as mandated by the RBI. The primary function of a Prepaid payment wallet Licence is to enable users to purchase goods or conduct transactions using the digital platform.
This prepaid payment instrument allows users to purchase goods and services and transfer funds, utilising the value stored within the instrument. This stored value represents the amount initially paid through cash, debit to a bank account or credit card.
Prepaid instruments can take various forms, including smart cards, magnetic stripe cards, internet wallets, mobile wallets, internet accounts, mobile accounts and paper vouchers. The RBI regularly issues guidelines and rules governing the usage of the Prepaid Wallet Licence, which entities holding the licence must diligently adhere to.
Benefits of Prepaid Payment Wallet Licence in India
The introduction of Prepaid payment wallet Licence has brought about numerous advantages, making it a significant step in financial innovation. Some of the key benefits associated with Prepaid Wallets are:
1. Enhanced Security:
Prepaid Wallets are intangible, reducing the risk of theft or loss compared to physical wallets.
2. Payment Flexibility:
Users can make payments in small denominations, allowing transactions as precise as Rs. 123.65 through online prepaid wallets.
3. Instant Transactions:
Prepaid Wallets facilitate instant transactions, providing a quicker alternative to traditional internet banking transactions.
4. Transparent Pricing:
Prepaid Wallet transactions typically involve no hidden or additional charges, ensuring transparency in financial dealings.
5. Fee-Free Usage:
Users are not burdened with service charges, activation fees, monthly fees or annual charges when using prepaid wallets.
6. Convenient Funds Loading:
Prepaid Wallets offer an easy and rapid method of crediting money, simplifying the process for users.
7. Auto-Pay Feature:
Prepaid Wallets can be set up for automatic payments, ensuring timely execution of due payments without user intervention.
8. Password Protection:
Prepaid Wallets are secured with passwords, offering an added layer of protection against unauthorised access, in contrast to physical wallets.
9. Minimal Documentation:
The registration process for online prepaid wallets requires minimal personal details, simplifying the onboarding process.
10. Incentives and Rewards:
Prepaid Wallet providers often offer incentives and rewards to users for their transactions or referrals, adding value to the user experience.
11. Timely Payments:
The use of prepaid wallets encourages timely payments, reducing instances of late payments and associated penalties.
Minimum Requirements for Obtaining a Prepaid Payment Wallet Licence
In order to obtain a Prepaid payment wallet Licence, applicants must meet specific minimum requirements, which are:
1. Requirements for Banks and NBFCs:
Banks and Non-Banking Financial Companies seeking a Prepaid payment wallet Licence must adhere to the following conditions:
No Objection Certificate:
Banks and NBFCs must obtain a No Objection Certificate from the Department of Payment Settlement and Systems of the Reserve Bank of India.
Minimum Capital Requirement:
The Minimum Capital Requirement must be met through various components, including:
- Net owned worth
- Preference shares
- Paid-up Equity Capital
- Free Reserves
- Share premium account
- Deferred Revenue Expenditure
- Capital reserves representing surplus
- Book value of intangible assets
2. Requirements for Non-Banking Entities:
Non-banking entities must fulfil the following conditions:
- Non-banking entities must register under the Companies Act, 2013, at the time of obtaining authorisation from RBI under the Payment and Settlement Systems framework.
- A minimum net worth of Rs. 5 crores, as per the latest audited balance sheet at the time of application submission, is required.
- By the end of the third Financial Year, the entity should achieve and maintain a minimum positive net worth of Rs. 15 crores.
3. Infrastructure Details and Net Worth Certificate:
Applicants are required to provide comprehensive details regarding their IT infrastructure setup for the operation of Prepaid Payment Instruments. Also, Non-banking entities without audited financial statements need to obtain a Net Worth Certificate from a Chartered Accountant.
4. Project Reports and Business Plan:
Applicants must submit detailed project reports and business plans to RBI. These plans should include:
- Strategies for establishing access points in semi-urban or rural areas.
- Mechanisms for addressing customer grievances.
- Proposals for joint ventures with Scheduled Commercial Banks.
Further, the MOA of the entity must include provisions allowing the company to engage in the activities of PPI issuance.
5. Annual Net Worth Certification:
An authorised non-bank PPI issuer must submit an annual Net Worth Certificate, using the prescribed format, to demonstrate compliance with net-worth requirements based on the audited balance sheet within six months of the financial year's completion.
6. Net Worth Achievement Timeline:
Entities must attain a net worth of at least Rs. 15 crores by specific financial year-end dates depending on the date of final authorisation:
- If authorised on 1st March 2021, a net worth of Rs. 15 crores must be achieved by 31st March 2023.
- If authorised on 1st May 2021, a net worth of Rs. 15 crores must be achieved by 31st March 2024.
These minimum requirements are essential for obtaining and maintaining a Payment Wallet Licence in compliance with regulatory standards.
Types of PPIs for Obtaining Prepaid Payment Wallet Licence in India
The Reserve Bank of India introduced various types of Prepaid Payment Instruments in its Master Direction in 2021, amending the Master Direction on Issuance and Operation of Prepaid Payment Instruments, 2017. Given below are the distinct types of PPIs available in India:
1. Small PPI:
- Small PPIs, whether cash loadable or non-cash loadable, can be issued by banks or non-banks with minimal information about the PPI holder.
- These PPIs are reloadable and exist in electronic form.
- They are primarily used for purchasing goods and services.
- Small PPIs are associated with specific merchants linked to a payment aggregator (e.g., Phone Pay).
- Monthly loading limit: Rs. 10,000; Annual limit: Rs. 1,20,000.
- Outstanding amount limit: Rs. 10,000.
- Monthly debiting limit: Rs. 10,000.
- Loading and reloading can be done through cash or electronic means.
- Conversion to full KYC PPI is required within 24 months from issuance.
2. Cash Non-Loadable Small PPI:
- These PPIs do not permit fund transfers or cash withdrawals.
- Monthly loading limit: Rs. 10,000; Annual limit: Rs. 1,20,000.
- Outstanding amount limit: Rs. 10,000.
- Monthly debiting limit: Rs. 10,000.
- Loading and reloading require a total KYC PPI, bank account or credit card.
- Small PPIs with cash loading capability can be converted into cash non-loadable Small PPIs.
3. Full KYC PPI:
- Banks or non-banks issue Full KYC PPIs after completing a detailed Know Your Customer (KYC) process.
- These PPIs are designed for funds transfers and cash withdrawals.
- The limit for Full KYC PPIs has been increased to Rs. 2 lakhs.
- They are reloadable, with no specific limits on credit and debit amounts within a month.
- Facilities for cash withdrawal and funds transfer are available.
4. Specific Categories of PPIs:
PPIs are issued only by banks and non-banks in specific categories, which include:
4.1. Gift PPIs:
- Value limited to Rs. 10,000.
- Not reloadable.
- Fund transfer and cash withdrawal are prohibited.
- KYC details are maintained by the PPI issuer and a separate KYC is not required for customers.
4.2. PPIs for Mass Transit Systems (PPI-MTS):
- Issued by Mass Transit System (MTS) operators with authorisation under the Payment and Settlement Systems (PSS) Act.
- Designed for use within MTS premises.
- Customer details required as determined by the PPI issuer.
- Reloadable, with a maximum outstanding value limit of Rs. 3,000.
- Funds transfers and cash withdrawals are not allowed.
Eligibility for Obtaining a Prepaid Payment Wallet Licence in India
To be eligible for obtaining a Prepaid payment wallet Licence in India organisations and entities must meet specific criteria and comply with regulatory requirements. Eligibility varies based on the type of organisation or institution seeking the licence. Given below are the eligibility criteria for different types of organisations:
1. Scheduled Banks & Non-Banking Financial Institutions (NBFCs):
These institutions must obtain prior permission from the Reserve Bank of India to apply for a Prepaid Wallet Licence.
2. New Incorporations:
Newly formed firms without audited financial statements must meet the following requirements:
- Obtain a certified Chartered Accountant certificate declaring their current net worth.
- File a provisional balance sheet as part of the application process.
3. Companies Holding Foreign Direct Investment (FDI) / Foreign Institutional Investment (FII):
Companies holding FDI or FII must meet the minimum capital requirements as specified by the FDI policy guidelines.
4. All Other Organisations:
Organisations falling outside the above categories must meet the following eligibility criteria:
- Possess a minimum net worth of INR 25 Crore.
- Maintain this minimum net worth in conjunction with their most recent audited balance sheet.
5. Companies Incorporated under the Companies Act:
Private or public companies incorporated under the Companies Act, whether the Companies Act of 2013 or 1956, can engage in the prepaid wallet issuing business.
However, such companies must have their objectives aligned with this business activity as stated in their Memorandum of Association.
Documents Required for Obtaining a Prepaid Payment Wallet Licence
To obtain a Prepaid payment wallet Licence, applicants must submit a comprehensive set of documents and information to comply with regulatory requirements. The following documents and details are required for Prepaid payment wallet Licence:
1. Applicant's Name:
The legal name of the applicant entity seeking the Prepaid Wallet Licence.
2. Address Proof of Registered Office:
Documentation proving the registered office address of the applicant entity.
3. No Objection Certificate from RBI:
A formal NOC obtained from the RBI indicating approval for pursuing the Prepaid Wallet Licence.
4. Certificate of Incorporation:
Official documentation verifying the incorporation of the applicant entity as a legal entity.
5. Detailed Report of the Principal Business:
A comprehensive report outlining the principal business activities and objectives of the entity.
6. Managerial Details:
Information regarding the key managerial personnel and executives responsible for the entity's operations.
7. Detailed Business Plan and Project Reports:
A thorough business plan that outlines the entity's strategies, operations and financial projections. Also, project reports detailing the expected outcomes and milestones are needed.
8. Sources of Funds:
Information about the sources of funding or capital to support the Prepaid Wallet Licence venture.
9. Proposed Capital Amount:
The proposed capital amount that the entity intends to invest in the prepaid wallet business.
10. Audited Balance Sheet of the Financial Year:
An audited financial statement for the relevant financial year demonstrating the entity's financial health.
11. Name and Address of Bankers of the Company:
Details of the banking institution where the entity maintains its accounts.
12. Appointment of Statutory Auditor of the Company:
Documentation confirming the appointment of a statutory auditor for financial compliance and reporting.
13. Expected Profits for Indian Financial System:
Projections regarding the anticipated impact and profitability of the prepaid wallet services on the Indian financial system.
14. Any Other Information Required by RBI:
Any additional information or documentation as specified by the Reserve Bank of India to meet regulatory compliance.
Procedure to Obtain Prepaid Payment Wallet Licence/PPIs in India
Obtaining a Prepaid payment wallet Licence or Prepaid Payment Instruments in India involves a structured process, with various steps and regulatory compliance. Given below is the procedure for obtaining authorisation to operate as a PPI issuer or Prepaid payment wallet Licence:
Step 1: Application Submission for Prepaid payment wallet Licence
- Begin by preparing and submitting an application in Form A for approval. This application should be submitted to the RBI.
- Ensure that the application includes all required documents and is accompanied by the prescribed government fee.
Step 2: Screening Process
- The RBI initiates a screening process to evaluate the eligibility of the applicants.
- During screening, the RBI assesses various aspects, including customer service efficiency, technical capabilities and safety and security measures, to determine compliance with regulatory requirements.
Step 3: Essential Checks
- The RBI conducts essential checks on certain critical aspects of the applicant's operations to ascertain that all requirements for the application are met.
- This is an important step in the procedure and applicants must ensure that they are ready for these checks by the RBI on their operations.
Step 4: In-Principle Approval
- After a thorough assessment of the applicant's eligibility criteria and determining them as "fit and proper," the RBI grants an 'in-principle approval.'
- The in-principle approval remains valid for a duration of six months, starting from the date of approval.
Step 5: Audit Report Submission
- Within the six-month validity of the in-principle approval, the company must submit an Audit Report to the RBI.
- Additionally, the company should provide a System Audit Report.
- Failure to submit the SAR within the specified timeframe will result in the automatic lapsing of the in-principle approval.
- In case of a need for an extension, the company can request a single extension of six monthsby submitting a written appeal with valid reasons.
Step 6: Grant of Final Approval
- After a thorough evaluation of all the particulars furnished by the applicant, the RBI grants the final authorisation.
- The company is then permitted to commence its prepaid wallet or PPI business within six months from the date of receiving the Certificate of Authorisation.
Validity Period of Prepaid Payment Wallet Licence and PPIs in India
The validity period of Prepaid Wallet Licences and Prepaid Payment Instruments in India is subject to specific regulations and conditions. Given below are the key points regarding their validity:
1. Prepaid Wallet Licence Validity:
- Prepaid Wallet Licences issued by regulatory authorities have a minimum validity period of one yearfrom the last loading or reloading date in PPIs.
- PPI issuers have the flexibility to issue PPIs with longer validity periods than the minimum requirement.
2. Certificate of Payment Wallet Licence Validity:
- The Certificate of Payment Wallet Licence, granted by the RBI, is ordinarily valid for a standard period of five years, unless specified otherwise.
- It's important to note that this validity is contingent upon regular review by the RBI and the RBI holds the authority to cancel the licence if deemed necessary.
3. Validity of PPIs Issued in Card Form:
- PPIs issued in the form of a physical card often have a validity period mentioned on the card itself.
- Customers who possess such cards have the option to obtain a replacement card upon expiration.
4. Handling of Outstanding Balances:
- The outstanding balances of payment instruments, such as PPIs, do not terminate immediately upon the instrument's expiration.
- A gradual depletion process is applied, allowing the value to decrease at a rate of 10% permonth based on the outstanding value.
- Holders of expired payment instruments are typically cautioned in advance about the approaching expiration date.
5. Renewal Process:
- To continue using a PPI beyond its expiration date, users must apply for renewal.
- The renewal application process typically needs to be initiated three months before the expiration date of the PPI.
Interoperability for Prepaid Payment Instruments
Interoperability for Prepaid Payment Instruments refers to the ability of customers to utilise PPI cards or e-wallets issued by any payment company to conduct digital transactions at any payment acceptance point. It involves ensuring technical compatibility between different payment systems, acting as a bridge between users and various payment platforms. The Reserve Bank of India had set a mandate for PPI operators to facilitate full interoperability for PPI cards by March 2022. This accessibility to interoperability is exclusively granted to customers who have completed the Full-KYC process.
Several types of PPIs are eligible for interoperability and can be used across different platforms:
- Wallets utilising UPI (QR codes in all modes will be interoperable by March 31, 2022).
- Cards (physical/virtual) affiliated with authorised card networks will have interoperability.
- Gift PPIs have the option to provide interoperability.
- PPI-MTS (Mobile Transfer Service) is exempted from interoperability requirements.
Consumer Protection and Grievance Resolution Framework for Prepaid Payment Instruments
In India, all providers of PPIs must transparently and clearly outline the following vital terms and conditions:
- Fees and Charges: Clearly state any fees associated with using the prepaid wallet devices.
- Expiration and Terms: Provide information about the prepaid instrument's expiration date, along with the criteria and terms associated with it.
- Customer Assistance Contacts: Display contact information for customer assistance, including the website address.
In addition to these, the following components summarise the framework for consumer protection and grievance resolution:
- Accessible Information Dissemination:
PPI issuers must disseminate information about their consumer protection and grievance redressal procedures in simple language, ideally in Hindi, English and the local language.
- Contact Information Accessibility:
PPI issuers must prominently display customer service contact information, including details of Nodal Officers for Customer's Grievance Redressal (email address, postal address, telephone numbers, etc.) on mobile wallet apps, websites and cards.
- Proper Identification Display:
PPI agents must accurately display the identification of the prepaid instrument's issuer and the clients' contact information.
- Dedicated Complaint Channels:
PPI issuers must provide distinct complaint numbers for filing/registering complaints and for customers to follow up on their complaints or service requests.
- Prompt Grievance Resolution:
PPI issuers are mandated to promptly address consumer complaints or grievances, preferably within 48 hours and respond to complaints within 30 days of receiving them.
- Public Listing of Authorised Individuals:
On websites and mobile applications, PPI issuers must display a comprehensive list of designated or authorised individuals, including their names, addresses, contact information, agent IDs, etc.
- Customer Education and Awareness:
PPI issuers must educate customers on password security, safe use of PPIs, procedures in case of card or authentication data loss or theft, detection of abuse or fraud and related security measures.
Why Choose StartupFino for Prepaid Payment Wallet Licence in India?
The implementation of Prepaid payment wallet Licences not only enhances the security and efficiency of financial transactions but also promotes financial inclusion by providing a user-friendly, cost-effective and convenient digital payment solution to a broader population.
StartupFino is a company that specialises in offering complete services for Prepaid Payment Wallet Licence. We can help you with everything from providing advice in the initial phase to ensuring that you meet all the necessary requirements and compliances for your Prepaid Payment Wallet Licence and registration.
