What is prepaid wallet License?
Prepaid Payment Instruments, also known as PPIs, are the payment
instruments which facilitates the goods and services transactions
conducted by the consumer, including financial services, remittance
facilities etc., against the value stored on such instruments. The PPIs have
emerged as a smart and convenient method of initiating cashless
transaction in the recent times where the country has experienced a whole
lot of cash crunch. It is an effective way of payment carried out it
transparency, scalability and accountability.
Generally PPIs are also called as e-wallets
Closed Prepaid Payment Instruments or Closed wallets
these may be issued by any entity which may include individuals, sole-
proprietorships, partnership firms etc. for the purchase of goods and
services from that entity only.As these instruments cannot be used for
payments and settlement for third party transactions, the issue and
operation of such do not require approval by the Reserve Bank of India.
Semi-closed Prepaid Payment Instruments or Semi-closed wallets
PPIs under this category can be used for purchase of goods and services
from a group of merchants united for this only purpose. Cash withdrawal
and redemption is not allowed by the holder of such instruments. All entities
including individuals, NBFCs are permitted to carry on the business of
semi-closed wallets after getting license from Reserve Bank of India.
Open wallets
This is a type of wallet which can be used to purchase goods and services
and also permit cash withdrawal at ATM's. These wallets can be used for
purchase of goods including financial services such as funds transfer at
merchant locations, also cash withdrawal at automated business
correspondents. Thus these are wallets used to buy goods and services,
including fund transfer at merchant locations, also permit cash withdrawals
at ATM'S. All Visa and master cards fall into this category. Only banks are
authorized to issue and operate open-wallets.
Cross Border Transactions
The individuals authorized under FEMA to issue the Foreign Exchange
denominated Prepaid Payment Instruments do not attract the provisions of
PPI guidelines as per the RBI notification. The transaction limit is set for
INR 5000/- for such cross border transactions.
Minimum Capital Requirements
Banks: there is no separate capital requirement specified for
Licensed/Scheduled Banks or NBFCs registered with Reserve Bank of
India. They shall be authorized to issue the PPI after obtaining approval
from RBI.
For other entities: A minimum positive net-worth of 25 crores as per
the last audited Balance Sheet shall be maintained by all entities seeking
approval.
Other conditions relating to capital requirements
The Net worth shall consist of the following items:
1. Paid-up Equity capital;
2. Preference shares;
3. Free Reserves;
4. Share premium account; and
5. Capital reserves representing surplus.
2. In case of newly incorporated companies, a certificate from their
Chartered Accountant regarding the current net worth along with
provisional balance sheet shall be submitted. Moreover, the documents in
relation to capital infusion and other funds acquired to start the business
shall also be submitted.
In case of Banks and NBFCs, the approval is given by the
Supervisory Department of the RBI.
The existing PPI issuers who obtained the license from RBI under
previous capital requirements shall be liable to increase their net-worth in
accordance with the present criteria by September 30, 2020, failing which
their license shall be cancelled.
Only an entity incorporated under Companies Act, 1956 or
Companies Act, 2013 shall be authorized to apply for the license from RBI.
The object clause of the MOA of the applicant company shall specify
the proposed activity of operating as a PPI issuer.
Authorization Process for Non-Bank entities
An application shall be made by every non-bank entity seeking
approval for license in Form A as prescribed under Regulation 3(2) of the
Payment and Settlement System Regulations, 2008.
First of all, RBI judges the prima-facie eligibility of the applicant in
preliminary screening.
Further, the ‘fit and proper’ status of the applicant and the
management is assessed after intake of feedback from regulators,
government authorities etc.
In case the applicant entity does not meets the eligibility criteria, the
application shall be returned with no refund of the fees.
Apart from the eligibility criteria, the application shall also be
assessed on the grounds such as customer service and efficiency,
technical and other related requirements.
On the fulfillment of every condition, the in-principal approval is
granted by the Reserve Bank of India, whose validity is of six months.
Within six months of the in-principal approval, the entity is required to
submit a satisfactory System Audit Report, failing which the in-principle
approval shall lapse automatically.
The entities which have been granted final approval shall commence
their operations within six months of the approval failing which the
authorization shall lapse automatically. A one-time extension of six months
can be obtained by making a request in writing in advance to the RBI with
valid reasons. The RBI reserves the right to accept or reject such
application for extension.
The Certificate of Authorization shall be valid for five years from the
date of its grant.
For renewal of license, the application to the RBI shall be submitted
three months prior to the expiry of the license, failing which RBI reserves
the right to accept or reject such application for renewal.
Documents Required
For Prepaid wallet license
Name of applicant.
Constitution of applicant.
Address proof of registered office.
Certificate of Incorporation.
Main business of company.
Management information.
Statutory auditor of Company.
Audited balance sheet.
Name and address of bankers of Company.
Any other documents as may be required.
Prior written permission by Non-Bank entities
All non-bank entities being granted the Certificate of Authorization to issue
PPIs in the country shall be required to take written approval from the
Reserve Bank in the following cases:
Any takeover or acquisition of control of non-bank entity, which may
or may not result in change of management;
Any change in the management of non-bank entity, which would
result in change in more than 30 per cent of the directors, excluding
independent directors. Prior approval shall not be required for those
directors who get re-elected on retirement by rotation.
Deployment of money collected on PPIs
The amount of funds collected against the issuance of e-wallets at a point
of time could be significant. Moreover, the revenue from funds may also be
speedy. In case the settlement of funds is certain and in a timely manner,
the confidence of the public and merchants, on the e-wallet system shall
increase rapidly. To guarantee the timely settlement, the issuers shall
invest the funds collected only as from the issuance of e-wallets as follow:
The banks shall keep the outstanding balance as a part of ‘net demand and
time liabilities’ for maintaining the reserves in the Balance Sheet which
shall be calculated on the basis of the balances appearing in the books of
the bank as on the date of reporting to the RBI.
Any other entity or persons issuing e-wallets shall keep reserved the
outstanding balance in an escrow account with any scheduled bank by RBI
subject to the satisfaction of following conditions: -
The account shall be maintained with only one bank at one time;
In case the aforesaid account is being shifted from one bank to
another, it shall be kept in mind that the process in completed in a time-
bound manner and without affecting the payment cycles;
The balance lying in the account shall always be equal to or greater
than the value of outstanding PPIs and payments due to merchants;
The amount lying in the account shall be used only for making payments to
the partaking merchant establishments and other permitted payments.
Validity of PPIs License
All PPIs issued by the PPI issuers shall have a minimum validity of one
year from the date of its issuance to the PPI holder. The PPI issuers shall
intimate the users about the expiry of their PPIs in a timely manner by SMS
/ e-mail / post or by any other means in the language preferred by the
holder indicated at the time of issuance of the PPI. Even if the PPI expires,
a grace period of at least 60 days shall be given by the PPI issuer to the
customer.
